The United States can contribute to expanding the benefits of FDI in the global economy by providing leadership in a variety of international economic institutions and initiatives. The United States also must avoid protectionist and discriminatory policies at home while pursuing more open markets abroad.
As it recovers from its lengthy recession, Japan can make the most important contribution to its own long-term prosperity and to overall stability and growth in the world economy by aggressively striving to reduce the current account surplus, including significantly reducing public and private sector barriers to imported products and services. Japan also can contribute in international forums by providing leadership in promoting open trade and investment.
Despite conditions that constitute significant barriers to FDI in Japan, U.S. MNCs should resist the temptation to “bypass Japan.” Despite the necessity in many cases for high initial investments, promising opportunities exist for U.S. companies in a variety of industries, and prospects are likely to improve. In addition, a presence in Japan often is critical for the strategic purpose of challenging Japanese competitors on their home turf, both through preventing Japanese firms from earning extranormal profits in the home market and as a mechanism for staying abreast of technological and business trends.
Conclusion Two: Because trade and investment issues inherently are intertwined, an integrated effort to liberalize trade and investment with the long-term goal of equal access to markets and economies is the only guarantee for long-term stability and expansion of the global trade and investment systems.
Despite greater progress toward free and open investment flows, the historical experience of U.S. and Japanese approaches toward FDI and foreign participation in the domestic economy indicates that a variety of approaches is possible. In addition, domestic systems affecting the microeconomy—in regulation, intellectual property, competition policy, R&D subsidies, corporate finance and other areas —have a significant impact on market access and direct investment flows.
While continuing to work toward broad multilateral progress in realizing the principle of national treatment, the United States should pursue new initiatives that go beyond this principle toward the goal of “equal access” to market and innovation systems. Conditions of equal access will prevail when MNCs of equal competitive strength—including management skill and effort, technological capabilities, and other factors— have an equal opportunity to participate in markets and innovation systems globally, wherever they are based. Although establishing the principle of equal access involves a number of practical difficulties, will take significant effort, and can be accomplished only in the long term, the United States must begin this effort with other like-minded countries, perhaps beginning in the developed world. The U.S. working group believes that all developed countries, including Japan, have an interest in achieving equal access through domestic reforms and collegial international negotiations, and that real progress toward equal access would help to prevent acrimonious bilateral trade disputes in the future.