Joint Statement 39th Annual U.S.-Japan Business Conference U.S.-Japan/Japan-U.S. Business Councils
October 22, 2002 Tokyo, Japan
The U.S.-Japan and Japan-U.S. Business Councils (hereafter the “Councils”) once again reaffirm their belief that the United States and Japan, as the largest economies, continue to have great responsibilities at this time of global economic instability.
- U.S. Economy
- The moderate U.S. recovery that started at the beginning of 2002 continues, fueled by housing investment and personal consumption. There are concerns over a possible slowdown due to sluggish corporate earnings, continued weakness in business investment, and the impact of a possible military operation against Iraq.
Despite steps taken by the government and corporations to restore investor trust, there are also concerns that continued instability in U.S. capital markets could have an impact on the real economy. To restore market confidence, U.S. corporations should continue to take steps on their own to improve accounting practices and corporate governance. The Councils also urge the government to exercise the fiscal and monetary policy flexibility needed to ensure a full recovery.
- Japanese Economy
- Although the Japanese economy bottomed out in the first half of 2002, there are concerns that recent growth, which is largely export driven, is unsustainable due to persistent weakness in domestic demand (private consumption and business investment). Deflationary pressures also persist, while consumer and business confidence remain low.
The Councils are encouraged that Prime Minister Koizumi is now making final resolution of the non-performing loan (NPL) problem one of the top priorities. The Japanese government should take prompt, coordinated action to expedite a large-scale disposal of NPLs to ensure that non-performing assets are shifted to productive use in the real economy. The government should implement tax measures to provide incentives to facilitate these dispositions and resolutions of NPLs and encourage the growth of well-functioning markets for credit and securitization.
Any injection of public funds should be linked to the disposal of NPLs through sale, loan workout, or bankruptcy. More effective and aggressive use of the RCC is critical in this regard. At the same time, the Councils feel strongly that resolution of the NPL problem cannot be achieved without broad based structural reform. A concrete, achievable plan to bring about structural reform would help Japan’s economic recovery.
Recognizing the scale and difficulties involved, the following policies should be implemented simultaneously:
・Drastic regulatory reform to increase labor mobility and produce new jobs.
・Expansion of the social safety net in areas such as unemployment insurance and training to ease the transition on affected individuals.
・A coordinated and flexible approach to fiscal and monetary policy.
・Responsible measures to avoid a liquidity crunch for viable small and medium-sized businesses.
- U.S.-Japan Private Sector/Government Commission
- The Councils welcome the initiative of the Japanese and U.S. governments in forming the U.S.-Japan Private Sector/Government Commission, and offer to assist the Commission in its future endeavors. The Councils support the principles of the Commission’s work, and urge both governments to take the Commission’s recommendations into account in developing their economic and fiscal policies.
- Corporate Governance
- The Councils note that because of the misdeeds of some corporations, shareholders and other stakeholders have lost confidence in corporate governance in both the United States and Japan. To restore confidence, the Councils believe that U.S. and Japanese companies should make efforts to improve corporate governance practices.
While Japanese and U.S. companies each have their own governance and management methods, there are fundamental principles and practices of transparency, financial disclosure and accountability that are common to good corporate governance. The Councils thus welcome the efforts of the business communities to learn from each other and pursue best practices.
- Foreign Direct Investment
- As the U.S. experience shows, foreign direct investment (FDI) is an important source of employment, tax revenue, technology transfer, and management know-how. The Councils believe that FDI can play a significant role in revitalizing the Japanese economy and industry, and therefore urge the Japanese government to take additional steps to improve the investment climate and welcome FDI.
These include regulatory and structural changes that make it easier and less costly to do business in Japan, improvements in accounting and financial disclosure to increase transparency, and legal and/or tax code measures that would provide clear incentives for mutually beneficial transactions such as tax-free, cross-border stock-for-stock transactions.
Finally, to help change perceptions and increase the availability of transactions, the Councils urge the Japanese government to give its full and strong support for FDI. The Councils will form a joint study group to outline these benefits and specific measures in more detail in the near future.
- U.S.-Japan Tax Treaty Revision
- The Councils continue to support the revision of the outdated U.S.-Japan Tax Treaty to reflect the enormous changes in the economic relationship between the two countries. We are pleased that the governments are making progress in formal negotiations, and urge the two sides to proceed as quickly as possible to finalize a modernized treaty in 2003. Early implementation will improve the bilateral business environment and encourage bilateral investment.
- Pension Reform
- The Councils acknowledge the positive step taken by the Japanese Government in introducing Defined Contribution (DC) Pensions in Japan in October 2001. Consistent with the Councils’ November 2000 joint statement, the Councils urge the Japanese Government to improve the DC Plan system by:
・increasing annual contribution limits for individuals substantially and allowing voluntary employee matching contributions in order to make the DC Plan effective and a primary source of retirement funds;
・expanding eligibility for participants;
・allowing DC Plan participants to access funds in times of financial emergency;
・encouraging flexibility in the types of investment options available under DC Plans;
・abolishing the special corporate tax;
・promoting the ability of participants to transfer Defined Benefit Plan and other pension assets fully to DC Plans.
The Councils ask the government to review and improve the DC Pension Plan system without being confined by pre-established dates or review cycles.
- Public Financial Institution Reform
- Both Councils welcome current efforts by the Government of Japan (GOJ) to advance reform of Japan's public financial institutions, including Postal Savings, Postal Life Insurance and the Housing Loan Corporation. It is essential that the Japanese government enact measures to ensure that fair competitive conditions exist between the private sector and such public financial institutions, including measures that subject them to the same tax burdens, Financial Services Agency supervision, disclosure rules, and other regulatory requirements as their private sector competitors. In particular, the Councils urge the GOJ to continue deliberating and making progress regarding reform of Japan’s Postal financial system, even after the launch of the Japan Postal Services Corporation in April 2003.
- Biotechnology/Food Safety
- Recognizing the significant contribution of biotechnology to global nutrition and food production, medical purposes, and environmental protection, the Councils encourage cooperation between the U.S. and Japan to promote greater public understanding of these advances through information exchange and outreach. The Councils agreed that food safety rules, like those for agricultural biotechnology, should be based on sound science, as required by international rules and guidelines. The Councils urge both governments to work closely in developing standards, rules and regulations that are scientifically based, transparent, and consistently applied.
- The Councils urge both governments to exert the leadership and flexibility needed to successfully conclude work in the seven Trade Negotiating Committees – including agriculture, WTO rules, services, and dispute settlement – by the January 1, 2005 target date for completion of the Doha Round. The Councils also urge the two governments to discuss the ways and means that will enable new areas such as investment rules and competition policy to enter formal negotiating status if a consensus is reached at the Fifth WTO Ministerial Conference in 2003. The Councils also support separate and joint endeavors by their respective governments to monitor China’s compliance with the terms of its WTO accession agreement.
- Climate Change
- The Councils agree to exchange information and opinions regarding the design of an equitable, flexible and effective framework for climate change mitigation in which all the developed and developing countries could participate. The Councils reaffirm the importance of both countries’ active commitment to technological innovation, as well as technological diffusion to developing countries. The Councils encourage cooperative efforts to increase energy conservation, such as the ongoing joint efforts to promote the use of energy-efficient glass in residential and commercial buildings.
- Information and Communication Technology
- To facilitate productivity gains, the revolution of business and corporate management and the stimulation of sustainable growth in the economies of the U.S. and Japan, the ICT industries of both countries will, by further strengthening mutual cooperation, develop and implement measures to support the development of infrastructure, applications and service offerings for broadband, mobile services, and ecommerce.
To advance broadband, mobile services and ecommerce, it is important not only to construct Information and Communications infrastructures, but also to develop applications and services while ensuring secure and effective solutions for such information sharing operations as authentication, payment, and management of copyrights.
- Business Aviation
- Both Councils recognize that while there has been limited improvement in access for business aircraft at Narita and Haneda airports, Japan still lags behind most other countries in its policies and practices toward business aviation. Further improvement is required at each airport.
For the future, Japan would be well served to consider improvements in other facets of the business aviation industry, namely: to establish a regulatory environment favorable to charter operations; to eliminate pre-certification requirements for aircraft parts on Japanese–registered aircraft; and to revise training requirements for business aviation pilots and maintenance personnel.
APPENDIX Japan-U.S. Business Council Statement
- West Coast Labor Disputes
- Given the financial impact that the West Coast port shutdown has had on Japanese corporations, Japanese companies belonging to the Japan-U.S. Business Council acknowledge their appreciation for the action taken by President Bush to resolve the dispute by using his statutory authority under the Taft-Hartley Act. Moreover, the Japan-U.S. Business Council is hopeful that the dispute will be resolved as quickly as possible.