Joint Statement by the Private Sector Members of the U.S.-Japan Private Sector/Government Commission
November 14, 2002

The U.S.-Japan Private Sector/Government Commission met on November 14 in Washington to discuss responses to joint recommendations centering on the theme of "Creating an Environment for Sustainable Growth: Raising Productivity and Corporate Revitalization" that the private sector members submitted to the U.S. and Japanese governments in Japan on May 10, 2002. Those recommendations dealt with increasing productivity, financial sector reform, deregulation, corporate governance and fostering entrepreneurship.

In our discussions, we noted a number of significant developments in both countries that have occurred since our last meeting. In the U.S., the Congress and President Bush moved rapidly to address concerns about the transparency of corporate accounting practices by enacting the Sarbanes-Oxley Act and other significant measures. In Japan, the government, with the cooperation of the Bank of Japan, renewed its commitment to end deflation and accelerate financial sector reforms through a comprehensive series of new programs.

We listened carefully to our government colleagues as they reviewed their reactions to the recommendations we had submitted to them. We expressed satisfaction with a number of actions or proposed actions that the Japanese and U.S. governments have taken or are seriously considering. However, it is vital that governments quickly translate their ambitious agendas for economic reform into concrete action. Both governments should make it their top priority to realize fully the potential of their private sectors. We strongly urge the two governments aggressively to address structural barriers and rigidities in their economies and to create the conditions needed for the early resumption of healthy economic growth.

In the five issue areas addressed in the Commission recommendations to governments, our discussions highlighted the following areas of progress or lack thereof:


It was agreed that continuing to take steps and create an environment in both the U.S. and Japan to improve productivity is critical for economic development in both countries. In Japan, the proposed 2003 Tax System Reforms offer an ideal opportunity for stimulating productivity and growth. We support these reforms which include R&D incentives, IT investment incentives and accelerated depreciation, and hope they are realized by next April.

We strongly urge the United States and Japan to pass legislation that will permanently extend tax incentives for R&D investment, and encourage efforts to allow immediate expensing of IT capital asset purchases. We support the "General Administrative Reform Dialogue," the "Japan-U.S. Regulatory Reform and Competitive Policy Initiative," and the "U.S.-Japan Investment Initiative" now in progress, and are encouraged by the progress the governments have reported to us. We wish to see more progress on efforts by the U.S. and Japan to ensure that inventors of new technologies receive adequate patent protection by supporting the efforts of the Trilateral Conference to harmonize the examination of patents globally.

Financial Reform

The Commission expressed the view at the May meeting that NPL resolution is the utmost priority in Japan; this view is now commonly shared by the Japanese. The Japanese Government's announcement of the "Comprehensive Measures to Accelerate Reforms" on October 30 expressed the government's will to make a coordinated approach to this issue, and we are encouraged by the government's new emphasis on finding a solution.

The perception of the market on the progress, however, has been mixed as reflected in the performance of the Japanese stock market.

Recognizing the complexity of the issue, we need to have realistic expectations, focusing on more targeted actions that can be realizable. We understand that the government is planning to announce the timetable for the implementation the plan by the end of November. We would like to watch for specific implementation plans, timetables and measurable progress in areas such as the following:

  • Write-down of troubled loans and the government's action on banks in cases of undercapitalization;
  • Government's specific actions on continued funding of troubled companies;
  • Outsourcing of restructuring and revitalization function;
  • Role of government and public-sector financial institutions to promote the development of financial system driven by market mechanisms.


We strongly endorse the progress made in deregulating some aspects of telecommunications and information technology in Japan and call on the Japanese government to intensify its efforts in these and other sectors. We support the goals of the "U.S. - Japan Regulatory and Competition Policy Initiative" and applaud its efforts to promote deregulation in the areas of telecommunications, medical devices and pharmaceuticals, energy and information technology.

We expressed concern about those sectors in Japan where the effort to deregulate has encountered difficulties and delays. For example, we urge the Japanese government to implement its proposal to create Special Structural Zones as soon as possible. Similarly, we expressed concern about differences between U.S. state regulation and federal government regulation of certain markets and their effect on access to those markets.

Corporate Governance

New U.S. laws and rules, including those introduced by the Sarbanes-Oxley Act, the New York Stock Exchange, and the NASD, outline requirements and standards for board independence and operations, audit responsibility, financial reporting, ethics and shareholder rights. These much needed reforms address the need to reinforce transparency and accountability on corporate management.

Unfortunately, these new U.S. rules were drafted without measured consideration of the impact on global companies that follow standards and traditions which, while effective at protecting the interests of shareholders, differ from those prescribed in the Act. We encourage the SEC to expeditiously make appropriate technical changes and exemptions to these rules to account for conflicts with Japanese law, practice, and tradition. We also agreed with the need to reinforce transparency and accountability in management, and agreed there were positive aspects of both our systems.

Promoting Entrepreneurship

Promoting foreign direct investment flows between the U.S. and Japan continues to be an important factor in revitalizing the economy. In Japan, the high cost of doing business is one of the biggest barriers for investment. To promote business start-ups in Japan, it is imperative that deregulation be expedited in the areas of real estate, transportation, distribution, and energy to lower the cost of doing business in Japan. As noted above, we urge that deregulation in these areas be carried out solidly and with speed, including through the work of the "U.S. - Japan Regulatory and Competition Policy Initiative." We encourage the government to revise the Commercial Code and the Tax Code to permit tax-free cross-border stock-for-stock and other mergers which would enable foreign companies to more easily make investments in Japan.

In addition to the above issues, we noted that the West Coast ports dispute was creating revenue losses for U.S. and Japanese companies and reducing productivity. We recommend that the dispute be resolved as expeditiously as possible for the benefit of both countries. We also urged the governments to complete a U.S.-Japan Social Security Totalization Agreement which would allow for more equitable treatment of national pension payments for expatriate workers in both countries.

We want to congratulate Prime Minister Koizumi and President Bush for their vision in creating the U.S.-Japan Private Sector/Government Commission. We believe that the private sectors in both countries have much to contribute as governments strive to overcome difficult economic circumstances. In our view, the Commission has only just begun to demonstrate its value in promoting frank exchanges on sensitive economic policy issues. Ultimately, the value of those exchanges depends not only on candor but also on the willingness of government officials to give serious consideration to recommendations they receive from the private sector members.

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