          
          
                  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
          
          
