The cabinet of Prime Minister Obuchi today approved a program of Special Measures to Promote Industrial Revitalization. This initiative is part of an ongoing effort to re-energize and restructure the Japanese economy and reflects a continuation of the economic reform measures initiated by the Japanese government over the last two years.

The Need for Industrial Revitalization

Japan's new industrial revitalization legislation is based on the need to improve the efficiency of Japanese corporations. A declining birth rate suggests that Japan will see a tightening of its labor force. Similarly, economic globalization has increased the mobility of capital. This is a very tough fact for Japanese companies as many have proven less attractive to investors than their competitors in recent years. Even many large companies have become non-investment grade and it is now recognized that Japanese firms need to achieve greater profitability and efficiency.

The Need for Corporate Restructuring and Reorganization

Corporate restructuring and reorganization is necessary to help companies to focus on profitable areas and the new emerging industries of the 21st century. This will help Japanese firms realize major increases in business efficiency and to facilitate labor flexibility as well as new enterprise development.

The Contents of Japan's Industrial Revitalization Program

Japan's industrial revitalization program is designed to "clean-up" the debts of the past and to develop a more competitive business environment. It incorporates initiatives to: a) help companies restructure their operations, b) promote start-ups and small- and medium-sized enterprise development, and c) facilitate R&D and technology development.

Measures to Facilitate Corporate Restructuring

Incentives will be made available to all companies who submit an eligible restructuring plan by March 2003. Approval by appropriate ministerial agencies will be based on clear, transparent criteria without favoritism toany industrial sector. The plans will help existing firms to strengthen their competitiveness through M&A activity and by facilitating their entry into new lines of business.

Other measures are designed to simplify corporate transactions, to create tax incentives including the acceleration of depreciation allowances and to introduce financial incentives such as stock options, debt/equity swaps and management and employee buy-out options.

Measures to Promote Small and Medium Enterprise Development and Entrepreneurship

The new legislation also seeks to enhance start-up activity and the development of the small business sector, which in the U.S. has made an inordinate contribution to the development of new technologies and growth in employment.

Measures to Support R&D and Technology Development

Noting the technological dynamism that currently exists in the United States, Japan is now introducing similar patent ownership guidelines. In particular, Japan is initiating a similar approach to government-funded research as adopted by the U.S. in 1980 when Senators Baye and Dole drafted legislation allowing companies to own 100% of the intellectual property rights gained through government-funded research. This is highly significant as it will help to stimulate private sector R&D and technological development in Japan.

A complete copy of JETRO's latest FOCUS: INDUSTRIAL REVITALIZATION NEWSLETTER can be viewed at its Internet web site: http://www.jetro.org/newyork/newsnet/focus/focus6.html

Focus is published and disseminated by JETRO New York, 1221 Avenue of the Americas, New York, NY 10020 in coordination with KWR International, Inc. 461 Park Avenue South, New York, NY 10016, Tel: 212-532-3005, Fax: 212-532-3345, E-mail: kwrintl@kwrintl.com . JETRO New York is registered as an agent of the Japan External Trade Organization, Tokyo, Japan and KWR International, Inc. is registered on behalf of JETRO New York. This material is filed with the Department of Justice where the required registration statement is available for public viewing.

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