*EPF407 05/09/2002
Transcript: Foreign Investment Vital to Economies, Larson Says
(Larson press conference in Tokyo May 8) (2840)

International investment is playing an increasingly vital role for all industrial economies, says Alan Larson, under secretary of state for economic, business and agricultural affairs.

Larson is in Japan heading a U.S. delegation to explore ways to boost Japan's historically low levels of foreign investment. At a press conference in Tokyo May 8, Larson noted that Japan has recently made "some significant improvements" in its investment rules and regulations.

"Nevertheless," he said, "it's striking that the two-way flows of investment between Japan and the United States were on the order of $77 billion [$77,000 million] last year, while the two-way flows of international investment between the European Union and the United States were at a level of $1.3 trillion [$1,300,000 million] last year. This means it would take seventeen years of investment flows between Japan and the United States in both directions to equal what we saw just last year between the European Union and the United States."

Both the United States and Japan are seeking further progress on investment and examining ways to facilitate a larger number of mergers and acquisitions between U.S. companies and Japanese companies, Larson said.

"A number of the merger and acquisition methods that are widely used in the United States and Europe are not available at present in Japan," Larson said. "And part of our discussion is really revolving around whether things like cross-border exchanges of shares or equities between companies could be an important contributor to investment between Japan and the United States, just as they have been a very important method of investment between Europe and the United States."

Following is a transcript of the press conference:

(begin transcript)

JOINT PRESS CONFERENCE
BY UNDER SECRETARY ALAN LARSON
AND METI [Ministry of Economy, Trade, and Industry] VICE MINISTER HIDEHIRO KONNO

5:00 p.m., May 8, 2002
Room West-3, 10th floor METI
Tokyo, Japan

VICE MINISTER KONNO: With your permission, Under Secretary Larson, since the Japanese side is hosting this meeting, I would like to lead off. This is actually the second meeting that we are going to hold about investment initiatives and this meeting has been held in the context of the Japanese-U.S. Partnership for Economic Growth, which has been agreed between President Bush and Prime Minister Koizumi. On the Japanese side, besides Minister of Economic Trade and Industry, we had participation from the Ministry of Foreign Affairs, Ministry of Justice, the Secretariat of the Office of the Promotion of Justice System Reform, Ministry of Land, Infrastructure and Transport, Ministry of Public Management, Home Affairs, Post and Telecommunications, Departmental Affairs, FSA, and the Ministry of (inaudible).

From the U.S. side, the delegation was led by Ambassador Larson, Under Secretary from the Department of State; and we also had Ambassador Greenwood from the State Department; and we also had participation from the USTR; Council of Economic Advisers; and also from the U.S. Embassy, we had the attendance of Minister Counselor Michalak as well as others from the U.S. (inaudible) of the U.S. Embassy.

I would characterize today's meeting to be a very constructive meeting in line with the spirit of the U.S.-Japan investment initiative. I'm saying so because it is a common recognition between the U.S. side and Japanese side that in the contemporary world of globalization, the companies have to compete with other global companies in a worldwide global market and that the governments of the respective countries would also have to compete with each other in order to improve the corporate environment-in order to vitalize the economies in the respective countries. And therefore, there is competition both in the corporate sector and government sector on a worldwide basis. And it's in that context that the government of Japan is making various efforts to try to improve the economic environment and the business environment, whereas the U.S. government is also making similar efforts. And it is in that context that we want to exchange information so we can both support each other in our mutual reform efforts and, therefore, this is actually the main objective of the investment initiative and that is why we had a very constructive dialogue and were very enthusiastic in holding this discussion today.

The U.S. has raised, as the U.S. issues of interest, the division of the commercial code, as well as accounting standards, as well labor flexibility, to which the various ministries and agencies from the Japanese side have given very thorough explanations and we have engaged in good discussions.

The Japanese side, also, has raised some issues of interest concerning the U.S. investment environment such as the high legal cost to which the U.S. side has provided explanations.

Actually, we have agreed between the U.S. side and Japanese side to compile a report reflecting the substance of the discussions that we have had today, as well as amalgamate in some way some of the results of the discussions that we have had at the working level over the past year. And it is our target today that we compile this report by the end of June because we are expecting that the U.S.-Japan summit will be held around that time to coincide with the hosting of the G-8 economic summit, because usually the U.S.-Japan summit is held around that time of the G-8 economic summit.

At the same time, we also attach importance to public outreach program so that the (inaudible) in both the United States and Japan will become fully cognizant of the changes and improvements which have been made in the corporate environment here in Japan-as well as in our two countries. And therefore, we have also decided to hold Japan investment symposiums: one in New York on the 16th of July and the other in Chicago on the 18th of July.

Under Secretary Alan Larson, as well as the other members of the U.S. delegation, have been very enthusiastic in your discussions today and provided very constructive comments to which I would like to extend my profound gratitude. And I would also like to similarly extend to my colleagues in the Japanese government's ministries and agencies, who were very enthusiastic in providing very detailed explanations. I consider today's discussion to have been a great success and thank you very much indeed.

UNDER SECRETARY LARSON: Good afternoon. We, too, felt that today's discussions on investment were very productive and we appreciate very much the effort that Vice Minister Konno and his team put into the preparations for the meeting.

Today's discussions on investment will be followed tomorrow by a meeting of the sub-cabinet economic dialogue and then on Friday by a meeting of the Private Sector Government Commission.

The starting point for our investment discussions is that international investment increasingly plays a vital role for all industrial economies. As the country that is both the largest destination for foreign investment and also the largest source of outward foreign investment, we have been very much aware in the United States of the benefits that international investment brings to our own economy. We also believe that in Japan, where historically levels of foreign direct investment have been very low, that investment can bring very important benefits in facilitating the restructuring of the Japanese economy. In recent years, there have been some significant improvements in the investment rules and regulations in Japan, and that has contributed to an expansion of foreign investment flows into Japan. Nevertheless, it's striking that the two-way flows of investment between Japan and the United States were on the order of $77 billion last year, while the two-way flows of international investment between the European Union and the United States were at a level of $1.3 trillion last year. This means it would take seventeen years of investment flows between Japan and the United States in both directions to equal what we saw just last year between the European Union and the United States.

One of the key issues that both sides are looking into to try to make even further progress on investment is to examine ways that we could facilitate a larger number of mergers and acquisitions between U.S. companies and Japanese companies. A number of the merger and acquisition methods that are widely used in the United States and Europe are not available at present in Japan. And part of our discussion is really revolving around whether things like cross-border exchanges of shares or equities between companies could be an important contributor to investment between Japan and the United States, just as they have been a very important method of investment between Europe and the United States. And finally, we're looking forward very much to the two investment symposia in the United States this summer as well as the report that we'll be preparing before the June summit. This is a report that I know will be examined with interest by President Bush.

QUESTION: Mr. Larson, you have mentioned that compared to foreign direct investment in the United States and the European Union that between Japan and the United States is extremely low. And how about the problemental reason for that, based on the tax system or in promoting deregulation or structural reform? Were such points mentioned in the discussion at all and, if so, would you suggest exactly what kind of ventures would help?

UNDER SECRETARY LARSON: Over the course of our work on investment, we have examined a number of issues that we think could contribute to an improved environment for international investment into Japan. Those include such issues as reform of the commercial code, strengthened rules on accounting, and deregulation of land and labor markets.

The issue we focused on today, though, was the environment for mergers and acquisitions, where it turns out that many of the techniques that have been widely used in Germany, France, United Kingdom, and the United States are not available in Japan. So we're trying to see whether if Japan moved to something closer to the standard practices followed in Europe and the United States, it wouldn't be possible to see a much larger amount of merger and acquisition activity-just as we have seen a very large and growing amount of merger and acquisition activity in both directions between Europe and the United States.

QUESTION: (Inaudible) Sankei Newspaper. I try to ask the Under Secretary Larson for the State Department. You mentioned just now that to encourage foreign investment is very important to have corporate transparency, including (inaudible), auditing, and accounting system. However, the recent scandal of the Enron and Xerox recently, Japanese companies have been skeptical about the corporate operation of the United States? Would do you defer to that? Is it operations of the corporations in America style is not any more the model for the future enterprise (inaudible) or not?

UNDER SECRETARY LARSON: We believe very strongly that transparency and accountability and a well-defined system of corporate governance is absolutely essential in today's world. I would never say that any system, including our own, is perfect, but I would say that our response to the Enron and Andersen situation is a very significant response. In particular, I think you would agree that the vigorous response of the U.S. Justice Department and of the Securities and Exchange Commission in the United States demonstrate better than I ever could through my remarks that we are absolutely serious about upholding these standards and that when those standards have not been upheld, then we're going to take very, very vigorous action.

QUESTION: Well, this question is addressed to Mr. Konno. I think the first and foremost request from the U.S. side was in the domain in the cross-border stock exchange M&A. And, so if so, the U.S. side is requesting that the Japanese system be changed so that this will be possible. So, Mr. Konno, how did you respond to this demand from the U.S. side and what kind of undertakings will be taken in the future?

VICE MINISTER KONNO: Well, considering this cross-border stock exchange M&A, let me explain what it is exactly. When two companies are merged with each other on an equal basis, and if there is not going to be a monetary consideration paid, however, if the stock of the two companies will be exchanged, respectively, as consideration for the merger. That is to say, the shareholder of the non-surviving company would be receiving the stock of the surviving company so that is the basic mechanism.

And so, we have further detailed explanations from the U.S. side today and it so seems that between the United States and Europe, this cross-border stock exchange M&A is being conducted on a very free basis... Whereas there is also an example of a Japanese company who has acquired a company in the United States on an equal basis utilizing this cross-border stock exchange system. However, as it stands, this will not be done in the case of Japan. So let me try to explain to you the domestic circumstances in Japan. A few years ago, the commercial code was revised in Japan and, therefore, if such a merger is between two Japanese companies then the stock exchange can be done. However, in the case of the cross-border stock exchange, it is true that up to today there is not even a single example that a merger has conducted in this way. Minister Harada, who is an expert in this field, attended from the Ministry of Justice and provided a very detailed explanation. And he explained that in the system of the Japanese commercial code, we cannot regard the stock of a foreign company, which has not been incorporated in the context of the commercial code, to be the same as a stock of a Japanese company, which has been incorporated according to the Japanese commercial code. So upon listening to this explanation, I did understand that since there are a variety of different countries around the world, perhaps this kind of an (inaudible) is also possible. And therefore, as the system exists today, the U.S.-type of cross-border stock exchange M&A cannot be conducted here in Japan. And therefore, it tends to be very difficult to immediately allow a foreign company to engage freely in cross-border stock exchange M&A in the domestic market here in Japan. And therefore, that means that we will have to come up with ingenious ideas so that this can be done. But at this point in time, we cannot have any foreign investors, as yet. But then we have to try to further study the situation with respect to countries and try to consider understanding (inaudible).

And finally, I will add just one note. There is also an issue associated with the tax law. And, of course, (inaudible) with regard to this cross-border stock swap is that there will be no taxation involved. And therefore, considerations of those that have been made in the context of the Japanese tax law.

QUESTION: James Simms from Dow Jones. This is actually to Under Secretary Larson. I don't if it's related or not. It's regarding both distribution and the retail. One is the replacement to the large-scale retail store law. I was wondering how the U.S. viewed the new law in terms of improving or worsening investment conditions. And the second is involving transportation. What would be in terms of the courts-in terms of, you know, problems there? Or have things improved? And I also want... The third thing is regarding Narita Airport. I mean, one of the largest, I believe, in terms of, I guess, value, in terms of trade, between the two countries is Narita. And I was wondering what the U.S. position is on the-there's talk that they're going to raise the landing fees despite having raised them to pay for the new runway.

UNDER SECRETARY LARSON: We did not specifically discuss today the changes in the large retail store law, but we have been following those changes and I think that it is a good sign that a large company like Wal-Mart has decided to get involved in an investment relationship in Japan.

On the two transportation issues that you raised, I will be having an opportunity to talk with the Vice Minister of Transport tomorrow and I'm sure we'll touch on both issues.

As well, one of the issues I would propose to raise is the whole question of transport security and you may have noticed in The Economist magazine recently, there was a very interesting article about this subject. And we certainly want to work with all of our major trading partners to take those steps that we can to improve the security of our transport systems and to do so in a way in that can actually make them more efficient and responsive to travelers and to freight forwarders.

(end transcript)

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

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