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Sunday, May 20, 2001

Fortress Japan? Blame MacArthur and his team

THE GENESIS OF THE JAPANESE FOREIGN INVESTMENT LAW OF 1950, by Richard Rabinowitz. German-Japanese Lawyers' Association Vol. 10, 1999, 11,000 yen, $ 84.50.

In 1853, Commodore Perry sailed into Tokyo Bay and demanded that Japan's quasi-military government allow foreign trade. The resulting interactions with the West and the ensuing trade agreements led to the downfall of the Tokugawa government in 1868 and the restoration of the Meiji Emperor as the head of the Japanese state.

During the Meiji Period (1868-1912), Japan underwent a radical transformation from a feudalistic state to a modern, industrial state. Japan adopted a Civil Code, Commercial Code and a host of other laws heavily influenced by France and Germany. As such, many consider the Meiji Period to be a blossoming of Japan and an opening of its markets to the West.

In fact, the initial motivations for the Meji Restoration were anti-West and xenophobic in nature. The "modernization" of Japan that occurred in Meiji was done largely to level the playing field so that Japan would not be colonized by the West.

This ultra-nationalistic perspective ultimately led to World War II as Japan attempted to replace the West as the colonizer of Asia.

On Aug. 15, 1945 the Japanese government finally accepted the Potsdam Declaration, thus ending World War II. The subsequent Occupation of Japan (1945-52) has been heralded as one of the modern marvels of the 20th century.

This very brief description of the history that preceded the Occupation is significant in order to understand the context of Richard Rabinowitz's new book, for one could easily argue that the West has been attempting (unsuccessfully) to open Japanese markets since 1853.

It therefore should come as a bit of a surprise to most American readers of this book that the so-called closed Japanese foreign investment system that governed foreign investment in Japan until 1979 was an American construct, not a Japanese one. Yet, this is precisely the thesis of this insightful and thoroughly researched volume of the history of the Japanese Foreign Investment Law.

This is an extraordinary achievement. Rabinowitz has compiled an impressive amount of information previously heretofore known by and communicated to very few. In the introduction, Rabinowitz apologizes for not having peer reviewers nor professional editors assist in the production of this work. He recognizes that this is its most significant defect. The result is that the reader must brave 14-line sentences, typographical errors, and writing that meanders.

Among legal scholars and practitioners, Rabinowitz requires no introduction. As a "junkain," a quasi-member of the Japanese bar, Rabinowitz brings nearly 50 years of experience in the study and practice of law in Japan to this work. Rabinowitz is one of the most significant American legal practitioners in postwar Japan.

The book raises serious charges regarding the competency of SCAP (the Supreme Command for the Allied Powers, the Occupation force in Japan) officials who were entrusted with policy for foreign investment during the Occupation and their legacy.

Chapter 1 introduces the reader to the Foreign Investment Law of Japan and Foreign Investment Commission Establishment Law. These two rather short laws created a commission and the general rules under which it operated to oversee foreign investment in Japan until 1979. In the international push to open Japan's markets to investment and technology transfers from foreign enterprises, both Japanese and Americans have blamed this law's restrictive nature as an "impediment." Rabinowitz appears to agree.

Chapter 2 is, perhaps, more laborious than it need be. It highlights that those two laws were introduced at the end of the legislative session in 1950 under extraordinary circumstances. Rabinowitz argues these circumstances indicate that SCAP dictated the nature and content of these laws and that Japanese lawmakers played a limited role. (In Chapter Four, however, he argues that but for Japanese initiative, SCAP would have likely delayed the implementation of foreign investment laws even longer.)

In Chapter 3, Rabinowitz describes SCAP's role in governing the "economic sphere." He argues that SCAP and its head, Gen. Douglas MacArthur, were either disinterested in the economic and investment aspect of the Occupation or incompetent. Rabinowitz argues that MacArthur was more interested in making a name for himself than in managing Japan's economic affairs.

Rabinowitz also argues that the board should have been very good at its job because many of the individual staffers had experience in administering Manchukuo, the puppet regime Japan set up in Manchuria during World War II. This is an important claim as well because most Americans believe that such high-level policymakers were purged from the Japanese government during the Occupation when, according to Rabinowitz, they, in fact, were playing important policy functions.

In Chapter 4, Rabinowitz argues that postwar foreign direct investment actually commenced in 1947 some 30 months before laws regulating such commerce were promulgated. He explicitly states that the New Deal regulators of SCAP, specifically Theodor Cohen, were opposed to foreign investment in Japan because they saw it as a threat to their control of Japan and maybe even as a threat to the legitimacy of the Occupation itself.

Chapters 5 and 6 detail the processes that led to the creation of the Foreign Investment Law in 1950. These chapters focus on the barriers raised to foreign investment in Japan from 1948 to early 1950, not by Japanese, but by SCAP itself.

Some of the rules are reminiscent of the Tokugawa restrictions. For example, until the end of 1948, foreign business people could come to Japan to investigate investment opportunities but they were forbidden to actually invest. They could not stay more than 60 days and they could not travel more than 160 km from their point of entry into Japan. In 1948 these SCAP regulations were changed to allow for direct investment, but the individuals still could not travel about Japan freely and could stay for only very limited periods.

In Chapter 7 Rabinowitz describes the transfer of regulation of foreign investment from SCAP to the government of Japan. In 1950 the Foreign Investment Law was drafted and passed into law. This law is seen as a rather restrictive vehicle by which the Japanese government, until its repeal in 1979, oversaw and approved (or rejected) each investment or transfer of technology into Japan.

Most American lawyers and business people charge that the existence of this law made direct investment in Japan unduly laborious and time-consuming. It is curious that this law turns out to be an American vehicle by which the economic policies of the New Dealers were carried out beyond U.S. borders.

The work is in need of professional editing. Fortunately, a glossary is included, but the mere fact that it is necessary highlights the inaccessibility of the work.

Still, this is a very important work, an extremely significant contribution to our understanding of the process and adoption of law in postwar Japan, and a profound commentary on the effects of the New Deal. However, I only wish the reader would not have to labor so intensively to discover its hidden treasures.

Kenneth Port, a visiting Fulbright research scholar at the University of Tokyo, is a professor of law at Marquette University Law School.

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