The government will tighten regulations on foreign investment in Japanese firms doing business in certain industries that are key to national security.
Foreign firms and investors will be required to report to the government in advance if they plan to acquire stakes of “1% or more.” At present that percentage is “10% or more.”
The aim is to broaden the scope of the law and keep a close eye on investments that can be overlooked under the existing rules. The acquisition of ownership stakes by foreign companies in businesses that are essential to national security and the outflow overseas of technology that can be converted into the manufacture of military weapons must be prevented. Tightening controls on these makes sense.
Of course, the government is eyeing China, which is stepping up efforts to develop cutting-edge technology at home. China dares to commit technology theft. This has long provoked international criticism. Not only the U.S., which is squaring off against China over technological dominance, but also Japan and Europe recognize this as a threat to national security.
Japan should not adopt regulations with loopholes. To prevent this, it needs to make all-out preparations to make its regulations more effective.
The government will present to the current extraordinary Diet session a bill to revise the Foreign Exchange and Foreign Trade Act (FEFTA). The existing rules require foreign investors to report to the government in advance when they seek to acquire stakes in such sectors as nuclear power and cybersecurity. When necessary, the government can order them to cancel their investments or sell off their stakes.
The new rules will introduce stricter controls on transactions in sectors that are keys to national security. The ownership stake of “1% or more” can allow investors to acquire the right to propose items for agendas at shareholders’ meetings. The government will also require investors to report in advance when they plan to propose sending board members or selling off key business projects. This will become effective in preventing foreign firms from wrongly accessing and acquiring sensitive technology.
On the other hand, the management of assets in sectors that have no direct impact on national security will not be subject to prior government screening. Promoting investments from overseas is indispensable for stimulating the nation’s economy. The government should allocate resources to reviewing activities that are aimed at preventing foreign investors from acquiring controlling stakes and stemming the outflow of technology rather than focusing on regulations that are less needed.
Tightening controls on foreign investment in areas concerning national security is a global trend of late. In the summer of 2018, the U.S. enacted a law to toughen controls not only on incoming investment but also exports. Meanwhile, the European Union (EU) decided on rules governing industries that become subject to investment review. Other European nations are making similar moves.
Rules introduced by countries vary. It is not realistic for Japan to build the same system as the U.S., as the law introduce there is designed to implement powerful rules in wide-ranging areas. Even though that is the case, it is of great significance for Japan, the U.S. and Europe to collaborate with one another in managing their systems. They must closely work together so they can share information and take concerted action when needed.