The Journal The Authority on Global Business in Japan

Cover Story | Government

November 2013
ENGAGING AND PROGRESSING
Growth strategy, TPP, parallel negotiations central to 18th Diet Doorknock

By Julian Ryall
Photos by Taro Irei

It is the 18th year that the ACCJ’s Government Relations Committee (GRC) went knocking on the doors of many of the most important and influential people in Japanese politics and policy making. The aim, as always, was to communicate an array of measures that members of the chamber are convinced will help deepen business relations and foster economic growth.

In a coordinated three-day effort from September 25 to 27, representatives of many of the chamber’s 60 committees held talks with politicians, including Cabinet members of the ruling Liberal Democratic Party of Japan, opposition parties, and senior bureaucrats.

The Diet Doorknock participants reiterated their commitment to this country’s growth and prosperity, while emphasizing the contributions that American businesses have made to companies and society here.

But economic challenges are never far away, on either side of the Pacific. Thus, the often-repeated message states, the imperative is greater than ever that both countries work together to achieve progress in some of the areas identified this year by the chamber in its Core Advocacy Principles.

The ACCJ’s major themes for the current year are Japan’s growth strategy, the Trans-Pacific Partnership (TPP), and parallel negotiations with the United States on non-tariff trade barriers. In addition, special attention is being paid to corporate governance reform, labor mobility, and corporate tax reform.

Chair of the GRC and senior counselor for White & Case LLP Arthur M. Mitchell said he has seen “both a quantitative and qualitative improvement” in the six years he has been involved in the campaign. And the change has been even more pronounced this year, he added.

“What has been different this time is that, I get the impression, [the politicians] are listening more,” he explained. “The reasons . . . are that we have come to the point where Japan is tired of recession. They want to move forward, [and] the Abenomics framework has been explained and put into action.

“All of this plugs right into [the ACCJ’s] themes of growth and change,” he added.

The evidence from previous Diet Doorknocks suggests that the annual campaign does play a significant part in making new contacts, improving understanding, and changing attitudes.

“We have been bringing up the Trans-Pacific Partnership deal for several years now, and former Prime Minister [Yoshihiko] Noda always told us that he was in favor [of it], but was not sure that his party would all support it,” he said. “The LDP said they were in favor [of the TPP]; but their constituents were not.

“Now they have realized that it is likely a deal will be done and they have to get on board, and that change has happened in the past year,” he said.

According to C. Lawrence Greenwood, Jr., vice chairman of the committee, the TPP has been an issue the chamber has been promoting for the past three years.

“I would say we have been pushing harder than the US government, and we have made it much clearer that we want [Japan] in,” Greenwood said.

The attitudes that the committee is aiming to alter in the months ahead are of concern to all chamber members, and are headed, this year, by changes in corporate governance.

The ACCJ is calling for such measures as requiring that at least one-third of the members of all boards be independent, and that board-training policies be disclosed.

The committee believes these measures would help increase productivity, through the efficient reallocation of resources, and encourage additional merger-and-acquisition activities. And this would, ultimately, promote both foreign and domestic investment.

In its most recent advocacy viewpoint document, the chamber’s Growth Strategy Task Force applauded the LDP’s foresight in its November 2012 election campaign, in which it promised to accelerate corporate governance reform through a series of measures, including “tightening the definition of outside directors, mandatory adoption of multiple independent directors at listed companies, . . . a more effective whistleblower system, . . . a review of the audit firm and public accountant system, tougher penalties for misconduct, and indemnification for those who voluntarily surrender.”

Unfortunately, these promises appear to have been watered down drastically in subsequent amendments proposed by Japan’s Ministry of Justice.

“The American Chamber of Commerce calls on the LDP and the government of Japan, led by Prime Minister Shinzo Abe, to act swiftly to ensure that the proposed amendments to the Company Law, to be submitted to the Diet, include the measures described in the LDP’s own campaign platform,” the ACCJ said in a statement, adding six specific recommendations on changes to laws and regulations in Japan.

“This is something that we have been pushing for a long time and we believe that, by putting the ideas, the research, and the rationale out there, we will be able to have a positive impact,” Mitchell said.

He added that another feature of the doorknock that he has noticed in recent years is that American companies are “having to get across the idea far less frequently that we are not the ‘black ships’.”

“We are not doing this as foreigners,” said Greenwood. “We are Japanese companies in so many respects—our employees, our management, the way we are regulated—it’s just that we have foreign owners.”

A second area in which the chamber is attempting to bring about change is in labor mobility, which would permit both companies and individuals to make decisions that enhance productivity, including a strengthened safety net that would enable workers to retrain themselves. In addition, tweaks to the Labour Law would allow more flexibility in the hiring and dismissal of employees.

The message imparted to the Japanese side is that these changes would not only make it easier, both for expanding companies and new entrants in the economy, to hire the staff they need in order to grow, but also serve as a prerequisite to bringing more women into the workforce.

However, this issue met more resistance than the issues related to corporate governance reform.

Mitchell pointed out that, while many of the politicians and policy-makers that they had met said they understood the chamber’s position, there is still reluctance to hire full-time employees if they cannot easily be fired.

There was far stronger backing for the third of the proposals, concerning reform of Japan’s corporate tax system. The suggestions put forward do not focus solely on lowering the effective tax rate, but on the extension of net operating loss (NOL) carryforward periods, to bring Japan into alignment with global best practices and thereby stimulate investment in innovation and encourage private-sector growth.

“There was pretty strong support for tax changes that could lead to revenue growth, specifically the [NOL carryforward period],” said Greenwood. “This is fairly easy for them to act on, although it doesn’t appear to be a very high priority for the government so far.”

However, the committee can point to successes in previous doorknocks, while the ongoing and constant process of communication can only have a positive effect, Mitchell said.

“Our research shows that new Japanese companies and foreign affiliate firms are the ones that are creating jobs in Japan,” he said. “And that is why it is in Japan’s best interests to have more foreign direct investment here.

“We are the voice of the American business community and, to a large extent, the international business community.

“We are constantly talking with our embassy and government policymakers in Washington because they want to know how we can increase trade.

“And our Japanese counterparts know this. In addition, they know they can talk with us and I can see a genuine willingness now to engage and progress,” he added.

CoverCol1.11.13

DividerWorking on last-minute details prior to the doorknock are (from left): Government Relations Committee (GRC) Chair Arthur M. Mitchell; Noriko Ijichi; Asami Ide; GRC Vice Chairman C. Lawrence Greenwood, Jr.; Ethan Schwalbe; and ACCJ Executive Director Samuel Kidder.

Divider