Foreign Relations of the United States, 1961–1963, Volume XXII, Northeast Asia

360. Position Paper⁰

JAE/D-21

Washington, November 26, 1962.

UNITED STATES-JAPAN COMMITTEE ON TRADE AND ECONOMIC AFFAIRS Washington, December 3-5, 1962

Position Paper (To be raised at U.S. or Japanese Initiative)¹

United States Investment in Japan

Although U.S. investment interest in Japan has been and continues to be active, the Japanese Government has been successful in restricting and channeling such investments to fields and levels considered by the Government to be consistent with its economic and commercial objectives. The Government has thus tended to encourage technological assistance contracts at the same time that only a minimum amount of equity investment has been approved.

United States Position

1. The United States believes that the growth in the Japanese economy and in Japanese exports over the past decade has been due in great measure to the large number of technological assistance contracts concluded with American companies. Benefits have also been derived from American equity investment, which unfortunately has not been of the magnitude which would have been possible had Japanese regulations been administered in a less restrictive manner.

2. Now that Japan has a strong economy and has succeeded in vastly improving its balance-of-payments position, such limitations on foreign equity investment can no longer be considered justified. Nor, in view of the worldwide movement on the part of developed countries toward a freer flow of trade and capital, can Japan afford to continue to isolate its business from the benefits which such investment can provide. Japan is a capital-short country and many mutually profitable enterprises have been under consideration. American investors cannot be expected to provide capital to Japan unless they are assured of the right to convert income into dollars and ultimately to repatriate capital.

3. In this connection, the United States would consider modification of Article XII of the Treaty of Friendship, Commerce and Navigation,² or the equivalent through less formal means, to be a regressive step. Publicity accompanying such a restrictive effort on Japan’s part would undoubtedly have an adverse effect on Japan’s economic relations with both the United States and other free world countries.

Japanese Position

1. The question of relaxing controls on the entry of private foreign equity investment is a difficult one for the Japanese Government. If, as a result of an IMF decision, Japan is classified as an “Article VIII country,”³ it may be anticipated that the inflow of foreign investments will rise substantially because Japan will no longer be able to restrict the outflow of current earnings from such investments. Some transitional arrangements would be necessary to assist Japanese industries in adjusting to the new situation.

2. Contrary to some opinions, there are many weak points in the Japanese economy, and the Japanese Government considers it essential to the future economic growth of the country that foreign capital not be permitted entry on an indiscriminate basis. For this reason, the Government hopes that Japan will be enabled to continue reasonable restrictions on foreign equity investment, particularly since soundness of the Japanese economy is a matter of much concern not only to the Japanese Government but to the United States Government as well.

0. Source: Department of State, Conference Files: Lot 65 D 533, CF 2187. Limited Official Use. Drafted by R.M. Klein of the Department of Commerce and cleared at the Departments of Agriculture, Labor, and the Treasury, and with the Council of Economic Advisers. Cleared by Trezise in the Department of State. This paper was prepared for the Second Meeting of the U.S.-Japan Committee on Trade and Economic Affairs; see Document 361.
1. It was not raised during the Second Meeting of the Committee.
2. For text of this treaty, signed at Tokyo on April 2, 1953, and entered into force on October 30, 1963, see 4 UST (pt. 2) 2063. Article XII requires the parties not to impose restrictions on transfers of foreign exchange except when necessary to prevent monetary reserves from “falling to a very low level” or to effect “a moderate increase in very low reserves.” It sets guidelines for foreign exchange restrictions when imposed. Documents in Department of State, Central Files 611.9442 and 394.41 for the fall of 1962 indicate the interest of some Japanese officials in a revision of the FCN Treaty that would allow the parties greater power to regulate direct investment and other capital transfers.
3. Reference is to Article VIII of the Articles of Agreement of the International Monetary Fund, signed at Washington on December 27, 1945, and effective for the United States that day. For text, see 60 Stat. (pt. 3) p. 1411. Article VIII pledges members to avoid multiple exchange rates and other restrictions on foreign exchange and to make their currencies freely convertible. Many members of the fund, including Japan, were able to join it in advance of full adherence to Article VIII.