Big Crack in the Wall

U.S. businessmen eager to invest in Japan's dazzling economy have long complained that Japan, Inc. is a very closely held corporation. For example, individual foreigners are forbidden to own more than 10% of the stock in any Japanese company, and firms in no fewer than 704 separate industries, including everything from automobile manufacture to fruit-juice production cannot be more than 50% owned by non-Japanese. Last week the Foreign Investment Council, a key board of private businessmen and economists that advises the government, recommended cracking open this protectionist wall. The Tokyo government is expected to approve, and shortly after, with a few notable exceptions, foreign investors should be able to own as big a share of Japanese business as they wish.

Consent. The proposed new rules would allow foreign investors starting new businesses in Japan to provide all the capital for them except in 22 industries. Of these, five that are considered especially vital to the Japanese economy--including munitions, leather and large-scale retailing--would be kept permanently off-limits to majority foreign ownership. The other 17 industries, among them clothing, computer, pharmaceutical and camera-film manufacturing, would be opened to 100% outside ownership within the next three years--though some investments would still be subject to government review. The council also urged that investors be free to buy as much stock as they wish in existing Japanese firms, except for those in the five strategic industries --"provided that the prior consent of the company involved is obtained." That stipulation seems designed to protect Japanese managements from being dumped if their firms are bought out by foreigners.

Just how much U.S. investment might be attracted by the new rules is problematical. Full-ownership opportunities will be delayed in some of the industries that Americans are most eager to enter. For example, American film manufacturers will not be able to run wholly owned subsidiaries in Japan until 1976. The permanent ban on big retail chains that are not half-owned by Japanese was a sharp disappointment to U.S. businessmen, who have long grumbled that Japanese retailers deliberately fail to promote American goods.

Ironically, if the new rules do prompt a flood of U.S. investment, the outflow will temporarily worsen the enormous American balance of payments deficit with Japan. Profits from the investments, however, eventually would shrink the deficit again. In any case, the liberalization is welcome, and should help soothe the often acrimonious relations between the two mightiest economies in the non-Communist world. It will constitute a long-overdue recognition of reality: Japan's economy has grown far too powerful either to need or deserve protection.

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