U.S.-JAPAN TRADE AND INVESTMENT The U.S.-Japan trade deficit reached an all-time high in 1987 at $59 billion, but has been slowly decreasing. The 1990 trade deficit was $41 billion, a decrease of 16.3 percent from 1989. The narrowing can be attributed to a continual increase in U.S. exports, as well as a recent decrease in Japanese imports into the United States. The first year in which U.S. imports from Japan decreased was 1990. While the U.S.-Japan trade deficit narrowed, Japan's overall trade surplus increased to $52 billion. U.S. exports to Japan consist primarily of automatic data processing machines and office equipment; wood, in the rough or roughly squared; aircraft, spacecraft, and associated equipment; seafood products; and semiconductors and other electronic components. Imports from Japan are comprised mostly of motor cars and other motor vehicles, automatic data processing machines and office equipment, parts and accessories of motor vehicles, scientific optical equipment, and semiconductors and other electronic components. U.S. foreign direct investment in Japan reached a cumulative value of $20.9 billion in 1990. This is an increase of 13.6 percent from the 1989 total of $18.5 billion. Foreign investment in Japan in 1989 was primarily in the machinery, real estate, commerce/foreign trade, chemical, banking/insurance, and services sectors. This figure is far below Japan's investments in the United States. The Foreign Exchange and Foreign Trade Control Law and the implementing Cabinet Order Concerning Domestic Direct Investment, Etc. (Cabinet Order No 261, Oct. 11, 1980) do not require official permission for direct foreign investment. Nevertheless, until recently, the prospective investor had to give prior notification of the proposed investment to the Ministry of Finance via the Bank of Japan, and to any other ministries with jurisdiction over the industry. In practice, the investor was notified that the Japanese Government has no objection within one hour following notification, if the proposed investment was in unrestricted industries. However, as part of SII, this prior notification requirement has been replaced by ex post facto notification for investment in unrestricted sectors. Japan provides foreign investors national treatment after entry with limited exceptions notified to the Organization of Economic Cooperation and Development (OECD). In accordance with the provisions of the OECD Code of Liberalization of Capital Movements, Japan retains restrictions in the following business categories to protect the national security and interest: for national security: arms, gun powder, atomic energy, aircraft, and space development; for maintenance of public order and protection of safety of the general public: narcotic manufacturing, vaccine manufacturing, and security guard services; and for protection of domestic industries: agriculture, forestry, and fisheries; petroleum refining and marketing; leather and leather product manufacturing; and mining. In addition, Article VII of the U.S.-Japan Treaty of Friendship, Commerce, and Navigation exempts the following sectors from the requirement for national treatment of investments: broadcasting, telecommunications, electric power generation and other public utilities, domestic rail and air transportation, banking, shipbuilding, and industries involved in the exploitation of land or other natural resources. Investments in the sectors mentioned above are restricted. Prior to the 1980 revision, foreign investment in these areas was prohibited. Investment is now allowed, but investment and ownership may be limited under the present law. U.S. investment has taken place in these sectors, but the criteria for defining and controlling these sectors remain unclear. The fact that guidelines are not made public potentially inhibits further investment. Foreign investment in the banking and securities industries is subject to a reciprocity requirement. The U.S. business community in Japan perceives that, in addition to the explicit legal and regulatory restrictions on foreign direct investment, further restrictions are implemented through "administrative guidance." In general, business in Japan is more regulated than in the United States, with much of the regulation taking place in private through consultations between the involved government ministry and industry. There is no counterpart to the U.S. Administrative Procedures Act in Japan requiring that regulatory laws and practices be formulated in public. Administrative regulations can impede investment, including foreign investment, in service industries such as trucking, telecommunications, and finance. The Japanese Government continues to publish "visions" for the future development of promising industrial sectors and to provide some funds for pre-competitive research in certain industrial areas. The Japanese Government does not employ local equity requirements, export performance requirements, or local content requirements. In addition, the Japanese Government has not forced foreign individuals or companies to divest themselves of investments. Japanese law allows limited foreign landholding, and foreign investors may repatriate capital and profits readily. The acquisition of existing Japanese companies is difficult due in part to cross-holding of shares among allied companies, and a low percentage of publicly traded common stock. The difficulty of acquisition of existing companies inhibits some foreign investment. While problems remain, the American business community perceives the Japanese Government on the whole as welcoming foreign investment at both the national and local governmental level. Japanese foreign direct investment in the United States reached a cumulative value of $83.5 billion in 1990. This is an increase of 24 percent from the 1989 total of $67.3 billion. At year-end 1988, Japanese foreign direct investment in the United States totaled $53.4 billion -- for an increase of 26 percent from 1988 to 1989. This slowing trend is due to a variety of factors: overall interest rates have risen substantially (although the impact on the manufacturing sector is not as great as others) and stock prices have substantially decreased. It has therefore become difficult for some Japanese companies to raise the necessary investment capital. For more information on U.S.-Japanese investment, contact the following organizations: U.S. Department of Commerce - Japan Export Information Center (202) 377-2425 U.S. Department of Commerce - Bureau of Economic Analysis U.S. Foreign Direct Investment Abroad (202) 523-0612 Foreign Direct Investment in the United States (202) 523-0641 U.S. Department of Commerce - Office of Trade and Investment Analysis Investment Data (202) 377-4628