Promoting investment flows between our two economies is increasingly at the forefront of the EU-Japan relationship. More investment is of mutual interest. The EU benefits from a modern, open Japanese economy with which European companies can trade smoothly and where they can easily establish branches or subsidiaries. For Japan, Foreign Direct Investment (FDI) plays a crucial role in aiding economic recovery. Many of the structural issues which impede investment are the self-same problems which hold back sustainable growth.
In 2000, trade between the EU and Japan in goods and services was worth 160 billion euro. Despite recent notable increases in direct investment, however, with the EU becoming the largest foreign investor in Japan in FY 2001, EU-Japan investment flows are still below potential and considerably beneath the huge flows between the EU and the United States. FDI into Japan, despite recent notable increases, has been historically low: still a mere 0.3% of domestic gross fixed capital formation, as against an EU average of 15.3%.
Three of the most persistent impediments to investment for European companies in Japan are red tape, a weak competition policy and a lack of independent regulation. There is a crying need to simplify the formalities associated with setting up a new business, and to tackle Japan’s high-cost structure. The tough enforcement of competition policy is also a key ingredient in creating a healthy modern economy; in Japan, fines for anti-competitive behaviour are comparatively low and quite rarely enforced. The EU takes the view that Japan needs to adopt a model of independent regulation in sectors formerly monopolised by nationalised corporations. Users need to have an independent regulator to look after their interests and stop newcomers being bullied by incumbents.
The EU is also urging Japan to send a clear and coherent message to the outside world that the country is open for business and investment. Prime Minister Junichiro Koizumi took a notable step in this direction by making just such a clear political statement, welcoming EU investment in Japan, at the EU-Japan Summit in Brussels on 8 December 2001. The EU looks to Japan to deliver one overall message, and one initial access point for information and help. Japan’s regions also need to be given the room to play to their various strengths. There is nothing wrong with a little bit of healthy competition, and it seems anomalous that 90% of Japan’s inward investment is centred on Tokyo, Kanagawa and Osaka, when the other regions of Japan also have so much to offer. Finally, investment promotion policies need to take account of global changes. The areas with real potential are the ones that add value, notably services. It is no coincidence that there has been massive FDI in Japan in recently liberalised sectors such as financial services and telecommunications, whereas before there was little. The fewer sanctuaries the Japanese economy provides for inefficient domestic monopolies or oligopolies, the greater will be its international competitiveness and the greater opportunities for foreign investors.
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The Japan Paradox - The Untold Story of Trade and Investment Opportunities in Japan |
