Joint Statement 40th Annual U.S.-Japan Business Conference U.S.-Japan/Japan-U.S. Business Councils
November 3, 2003 Washington, DC
The U.S.-Japan and Japan-U.S. Business Councils ("the Councils") agreed that the U.S. and Japanese governments and business communities must act to ensure the durability of their economic recoveries while reaffirming the need for free and open markets. Global economic stability depends on leadership from the world's two largest economies.
- U.S. Economy
- The Councils are increasingly encouraged by prospects for a solid U.S. recovery supported by private consumption and capital investment. In the near term, U.S. economic growth is expected to accelerate due to tax cuts and supportive financial conditions. With inventories at low levels, rising demand will lift production. The rise in trend productivity growth suggests that the recovery will be durable, although stronger labor market performance is needed to ensure self-sustaining growth.
The current account deficit may be difficult to maintain in the long run, and the fiscal deficit has expanded, primarily due to increases in healthcare and security spending and a short-term decline in tax revenues. While expectations are that the fiscal deficit will narrow after 2004, expansion of these deficits could lead to further depreciation of the dollar and, eventually, increases in long-term interest rates.
The Councils applaud the flexible positions and policies for economic recovery taken by the U.S. government, and encourage it to take initiatives to control fiscal deficits and improve savings rates over the long term.
- Japanese Economy
- The Councils are pleased to see recent signs of recovery in the Japanese economy fostered by more flexible monetary policy, higher investment, and exports. There are positive signs of a more resolute approach to disposing of non-performing loans and accelerating corporate restructuring, including through the support of the new Industrial Revitalization Corporation of Japan. We look forward to continued progress on these fronts.
In order to achieve a sustainable recovery, it is important that the Japanese government and BOJ continue to respond with flexible and coordinated policies that boost domestic demand and eliminate deflation.
The Councils applaud the Japanese government's determination to pursue forward-looking structural reforms. In particular, we encourage the government to accelerate economy-wide regulatory reforms that encourage innovation and promote further improvements in the business environment in Japan.
- Foreign Direct Investment
- The Councils encourage the Japanese government to do everything possible to meet or surpass the goal to double foreign direct investment (FDI) in Japan over five years. FDI increases productivity and revitalizes the host economy by adding to total output, employment, and tax revenue, as well as through the transfer of technology and new business methods. The Councils encourage the Japanese government to do more to disseminate this information and message as part of a sustained effort to improve perceptions and attitudes toward FDI in Japan, including the fact that mergers and acquisitions (M&A) account for most FDI in developed economies.
More importantly, the Japanese government is expected to take concrete steps to improve the environment for FDI. These include regulatory and other reforms that allow new entrants, promote competition and innovation, and enhance transparency; tax deferral and commercial code changes that lead to increased cross-border M&A; tax improvements including lower corporate tax rates; and transfer of authority and financial resources to the local governments that allow them flexibility to provide specific incentives to investors.
Similar recommendations have been made by the Invest Japan Forum and Japan Investment Council. The Councils support their recommendations in principle, and strongly expect the Japanese government to move urgently and to implement them.
- U.S.-Japan Tax Treaty Revision
- The Councils commend the U.S. and Japanese governments for their diligent efforts to reach the "agreement in principle" on a modernized bilateral tax treaty announced on June 11, 2003. Once finalized and ratified, the treaty will provide significant benefits to U.S. and Japanese companies through reduced withholding rates on dividends, royalties, and interest, and other procedural improvements. The Councils therefore urge negotiators to finalize the treaty as soon as possible. Furthermore, the Councils urge the U.S. Senate and Japanese Diet to ratify and make the treaty effective as early as possible in 2004.
This will allow U.S. and Japanese companies to realize these benefits as soon as possible and will provide additional incentives to investment and business activity in both economies.
- Social Security Agreement
- The Councils welcome the decision by the U.S. and Japanese governments to reach a balanced Social Security agreement that will benefit companies from both countries, as well as individual employees.
The Councils urge their respective governments to expeditiously sign the formal agreement and take the necessary steps to bring the agreement into force.
- After the breakdown in negotiations at the Cancun Ministerial Meeting, the Councils urge both the U.S. and Japanese governments to exhibit flexibility and leadership in working together and with all trading partners, including developing-country members, to bridge major differences and fulfill collective obligations to the global trading system. All parties must be willing to address the most difficult issues, such as agriculture, to have any hope of successfully concluding the Doha Development Agenda by the January 1, 2005 deadline. In addition, regional and bilateral free trade agreements should complement and reinforce the WTO.
The December 2003 Senior Officials Meeting in Geneva provides an important opportunity to get Doha back on track, and we encourage U.S. and Japanese negotiators to do their utmost to bring about an "ambitious and balanced outcome" to the Doha Development Agenda, as called for at the recent APEC meeting.
- Pension Reform
- The Councils believe that the reinforcement of corporate pension schemes to supplement national pension schemes will become much more important in Japan in view of the rapid demographic and social changes now taking place. In particular, the expansion of the Defined Contribution (DC) Pension Plan system that was introduced in October 2001 will be effective not only for reinforcement of pension schemes but also for invigorating capital markets. The Councils ask the Japanese government to review and improve the DC Pension Plan system, without being confined by pre-established dates or review cycles, by:
・increasing contribution limits substantially;
・abolishing the special corporate tax;
・allowing voluntary employee matching contributions;
・expanding eligibility for participants;
・relaxing restrictions on access to DC Pension funds;
・allowing full transfer of Defined Benefit Plan and other pension assets to DC Plans;
・enhancing portability of DC Plans;
・encouraging flexibility in the types of investment options available under DC Plans.
- Public Financial Institution Reform
- The Councils welcome current efforts by the Japanese government to advance reform of Japan's public financial institutions, including Postal Savings, Postal Life Insurance, and the Housing Loan Corporation. The Councils call on the Japanese government not to end postal financial system reform with the April 2003 transfer of postal businesses to the Japan Postal Services Corporation, but to continue promoting those reforms. The Councils note, however, that the terms and conditions of such reforms must address the competitive impact of these institutions on the Japanese financial services market, particularly in consideration of the original purpose of their establishment.
It is also essential that the Japanese government promptly 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, and other regulatory requirements as their private sector competitors. In particular, the Councils urge the Japanese government to cease, among other things, broadening the range of products underwritten/manufactured by Japan's postal financial institutions beyond what is currently done, including the recent new product development initiative by Japan Post.
- Corporate Governance
- The Councils welcome the positive steps that have been taken in both the U.S. and Japan to strengthen corporate governance. These steps include enactment of the Sarbanes-Oxley Act in the U.S. and the amendments of the commercial code in Japan, which enhanced the existing auditor system and introduced a new committee system.
While Japanese and U.S. companies have their own governance and management methods, there are common principles such as transparency, accountability and independence of outside directors and auditors that have been recognized as essential to good governance.
U.S. and Japanese companies should continue to reinforce corporate management structures based on these principles. This would increase domestic and foreign investors' confidence, which leads to capital market growth and stability in each country. Toward this end, the Councils urge further efforts by the business communities to learn from one another's experiences and pursue best practices.
- Biotechnology/Food Safety
- Recognizing the significant contribution of biotechnology to many issues of the 21st century, in order to capture the true potential of biotechnology, the Councils encourage cooperation between the U.S. and Japan to promote greater regulatory consistency and a proper public understanding of biotechnology's value, beginning from research and development to commercialization. This will require standards, rules and regulations in the areas of biotechnology and food safety that are based on sound science, and are transparent and internationally harmonized.
For the further development of bio-industries, amalgamation of diversified technologies, such as IT and nanotechnology, is indispensable. The Councils encourage international cooperation among corporations, and between industries and academia, as well as the rise of bio-venture businesses, to achieve this goal.
- Health Care Innovation
- Vibrant medical device and pharmaceutical industries depend on supportive government policies in the inter-related phases of bringing a product to patients - R&D, Registration and Approval, and Pricing. Approval and pricing policies that encourage innovation will spur R&D investment, leading to innovative therapies that improve patients' lives and create economic growth.
The Councils encourage both governments to continue taking steps that will create opportunities for domestic and global companies to invest and innovate.
- Information and Communication Technology
- The Councils acknowledge that robust adoption of Information and Communication Technology (ICT) can facilitate productivity, enhance the efficiency of corporate management and business processes, and lead to increased global competitiveness.
The Councils assert that productivity gains can be realized when ICT is deployed in an environment that allows for competition and innovation, and is partnered with managerial leadership and investment strategy.
The Councils recognize that innovations in ICT and the deployment of broadband and mobile networks are moving us toward a ubiquitous network society, where information can be exchanged anytime, anywhere, and by anybody. The Councils acknowledge that in order to achieve that promise, it is indispensable to create a reliable networked environment with high-level security and privacy protection where users' data is secure, access to their personal information is adequately protected; and attacks via network such as spam, online fraud, hacking, and viruses are preventable through technology and information sharing, and are punishable by law.
- Climate Change
- The Councils agree to exchange information and opinions, by industry sector, 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 for the reduction of greenhouse gas discharge with high cost effectiveness, as well as technological diffusion to all countries in the world, including the developing countries.
In this connection, the Councils commend the ongoing joint efforts to strengthen the energy-efficiency provisions in Japan's building codes and urges prompt action by the Japanese government.
- Despite some progress, both Councils recognize that Japan still lags behind most other countries in its policies and practices toward business aviation. Further improvements - in such areas as number of available slots, expansion of hours of operation, simplification of customs processes, and construction of fixed base operations (FBOs) to provide services for business aviation - are required.