JETRO WHITE PAPER ON FOREIGN DIRECT INVESTMENT 1999
Japan
External Trade Organization (JETRO)
6. Recommendations
(1) Given that sudden, massive
short-term capital flows brought about the currency and economic
crises in Asia, international rules need to be established for
monitoring short-term capital movements to prevent a reoccurrence
of such crises.
(2) The Asian currency and economic
crises have prompted developing countries to reaffirm the importance
of FDI inflow. The resulting relaxation and abolition of regulations
on FDI is improving the investment environments in these countries.
In the future, industrial bases must also be improved. More specifically,
this includes not only infrastructure, such as roads, ports and
electricity, but also the development of financial systems and
human resources, and the stabilization of labor-management relations.
Doing so will require the technical and financial support of developed
nations, including official development assistance (ODA).
(3) The Japanese government has been
actively aiding Asian countries affected by the crisis and is
contributing to business in the region by, for example, facilitating
financing for local Japanese firms and their customers. It is
these firms that hold the key to Asia's
economic recovery; they not only make important local contributions
to trade and economies, but also help to form intra-regional business
networks in Asia. Aid of this kind must be continued.
(4) Productive foreign firms are entering
the Japanese market to develop their own distribution and sales
systems, which is stimulating the Japanese economy. However, the
legal framework for M&As, the main means by which firms expand
into other countries, is underdeveloped in Japan, and this has
caused considerable dissatisfaction among foreign firms seeking
to set up operations in Japan. Consequently, efforts must be made
to improve Japan's investment
environment, including the framework for M&As. A reduction
in the effective corporation tax rate and introduction of a stock-for-stock
transactions, both currently being pursued by the government,
should be implemented swiftly.
(5) Local authorities seeking to attract
foreign investment must provide information that is more detailed
and covers a wider scope. So far, information has concerned mainly
industrial estates and the level of development of local infrastructures.
In the future, greater emphasis will have to be placed on information
of specific interest to foreign firms, such as residential environments
and growth prospects of local economies, industries and markets.
Comprehensive information will have to be provided via channels
such as electronic media.
(6) Economic globalization and the global
spread of FDI have rendered statistics on FDI insufficient to
give a clear picture of the actual investment situation. Countries
therefore need to actively cooperate within an international framework
to improve and harmonize their FDI statistics.
Table 37. Changes in FDI Policies
in Countries Affected by Currency Crisis
1. Foreign equity ownership
Country |
Main changes to regulations
|
R.O.K. |
Previous | - 26% ceiling on foreign equity ownership per issue.
- Maximum 10% foreign ownership of outstanding shares in case of hostile M&As.
|
Deregulatory measures
| - 100% foreign equity ownership permitted (January 1998).
- Liberalization of M&As (excluding firms in the defense industry) (April 1998).
Enactment of the Foreign Investor Promotion Act. Liberalization and protection of foreign capital and expansion of support systems (November 1998).
|
Thailand |
Previous | - BOI limited foreign equity ownership of most firms located in the Bangkok area (Districts 1 and 2) to 49%. (Majority stakes possible in case of firms with export ratio of 50% or higher.) No restrictions for District 3.
|
Deregulatory measures
| - Majority stakes in existing BOI-approved enterprises eligible for investment incentives permitted if Thai investors consent (December 1997).
- Majority stakes in non-BOI-approved enterprises permitted if in a sector eligible for investment incentives and authorized by the BOI (May 1998).
- Ceiling on foreign equity ownership of financial institutions raised from 25% to 49%. Upper limit abolished for ten years (October 1997).
- Upper limit on foreign equity participation in new investments in Districts 1 and 2 abolished by BOI until end of 1999 (November 1998).
|
Malaysia |
Previous | - Foreign equity ownership limits tied to export ratios (e.g. minimum export ratio of 80% required for 100% foreign equity ownership).
- Maximum foreign equity ownership of 30% for general domestic telecom providers.
Malay share quota established under the Bumiputra policy (policy of offering preferential measures for Malays), e.g. if foreign equity participation was 70% or over, remaining equity would be reserved for Malays.
|
Deregulatory measures
| - Limit on foreign ownership of general domestic telecom providers raised to 61% on condition that stake lowered to a maximum of 49% in five years and funds raised overseas (May 1998).
Restrictions on foreign equity participation in new and expanded projects in most fields of manufacturing abolished until the end of 2000 (August 1998).
Ceiling on foreign equity ownership of foreign-affiliated insurers in which shares are currently held raised to 51%.
Transfer to non-Malays (including foreigners) of shares covered by Bumiputra policy permitted on an individual basis (April 1998).
|
Philippines
| Deregulatory measures
| - Ceiling on foreign equity ownership of existing foreign-affiliated banks raised to 51% (formerly under 40%). Holdings in excess of the ceiling guaranteed.
|
Indonesia |
Previous | - Maximum foreign equity ownership of 49%.
|
Deregulatory measures
| - Abolition of ceiling (excepting financial institutions) (September 1997).
- Abolition of ceiling for financial institutions (November 1998).
Shareholder makeup of existing foreign-affiliated financial institutions guaranteed.
|
|
2. Industries with foreign capital
controls
Country |
Main changes to regulations
|
R.O.K. |
Previous | - Controls in 42 of 1,148 sectors (blanket controls in 13 sectors).
|
Deregulatory measures
| - Deregulation in 29 sectors (January 1999).
- Authorization of incorporation of 100% foreign-capitalized financial institutions (March 1998).
|
Thailand |
Previous | - 49% ceiling on foreign equity ownership in 68 sectors under Foreign Enterprise Regulation Act. Majority foreign equity ownership possible in 37 sectors if firms were eligible for BOI investment incentives, and in 14 sectors if permission was obtained from Ministry of Commerce.
|
Deregulatory measures
| - Amendment of the Foreign Enterprise Regulation Act under deliberation. Under the amendment being considered, controls in 29 of the 63 sectors covered (e.g. wholesale, retail and trade brokerage) would in principle be lifted, and participation by foreign capital in the remaining 34 sectors (19 sectors related to safety, security and environmental resource protection, and 15 sectors in which Thai capital is insufficiently competitive) would be permitted under certain conditions.
|
Indonesia |
Deregulatory measures |
- Reduction of fields closed to investment.
- Participation by foreign capital permitted in wholesale and retail sectors on condition that capital participation in small enterprises is at least 20% (July 1998).
|
Source: National statistics, JETRO office
reports and World Investment Report 1998 (UNCTAD).
|
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