This blog has covered a broad range of international business topics. In this first installment of our International Business Spotlight, we’ll take a look at how countries across the world conduct business. Today, we’ll journey to the Land of the Rising Sun and learn about Japanese trade regulations.
The Ministry of Finance and the Ministry of Economy, Trade, and Industry
Japan’s two governing bodies in the realm of international trade are the Ministry of Finance (MoF) and the Ministry of Economy, Trade, and Industry (METI). Prior to 2001, the Ministry of International Trade and Industry (MITI) regulated international policy and investment. However, Japan’s 2001 Central Government Reform reorganized the country’s legislative structure, thus establishing METI. Together, MoF and METI enforce the centerpiece of Japan’s global business legislation—the Foreign Exchange and Foreign Trade Act.
Foreign Exchange and Foreign Trade Act
Japanese law does not prohibit foreign shareholding in general, but certain industries limit international investment opportunities. Most notably, telecommunications and aviation caps the ratio of foreign shareholding to domestic shareholding. Many other high-tech industries in Japan established similar limits in August of 2019.
The Foreign Exchange and Foreign Trade Act pertains to imports and exports, enabling officials to screen these products and approve their distribution.
While foreign shareholding is permitted, the Act sets strict regulations on the process of making foreign investments. The Act strives to maintain “peace and security in Japan and in the international community through the minimum necessary control or coordination of foreign transactions.” To accomplish this, the Act subjects foreign investments to both pre- and post-transaction reporting. Foreign investments related to weapons, nuclear energy, agriculture, and similar industries in particular are subject to pre-transaction screening by the government, due to the sensitivity of products and services.
The Act for Promotion of Japan as an Asian Business Center
Businesses seeking to establish affiliate companies in Japan, particularly those which partake in research and development or supervisory business, fall under the Act for Promotion of Japan as an Asian Business Center. Once these businesses have been certified, they can take advantage of various investment incentives. For instance, expedited patent examinations–while the typical process takes almost two years, the accelerated process can be completed in two months. Additionally, examination and patent fees for small and medium-sized enterprises (SMEs) can be halved.
The goal of this Act is to promote global initiatives and enterprises, which makes these investment incentives so important. By attracting R&D and supervisory organizations, Japan stimulates its domestic economy alongside the global one.