TOKYO - The Japanese parliament on Friday enacted a revised law to strengthen screening of foreign investments in Japan, by setting up a cross-ministerial, U.S.-style panel to prevent leakage of critical technologies and intelligence.
The revision of the foreign exchange and trade law paves the way for establishing a Japanese version of the Committee on Foreign Investment in the United States, which would expand the scope of prescreening for risks to national economic security.
The government of Prime Minister Sanae Takaichi seeks to ensure that it can identify foreign investments considered risky.
The revised law was approved by the House of Councillors on Friday after clearing the House of Representatives earlier.
The foreign exchange and trade law stipulates that the government must prescreen foreign investors when they acquire a certain level of shares in companies engaged in critical businesses related to national security, such as nuclear power, defense, aviation and electricity.
Under the amendment, the screening will also be conducted when another foreign company acquires a foreign company that already holds shares in a Japanese company.
If the security risk is deemed particularly high, such as when an investment is made by a company that has previously violated the foreign exchange and trade law, the government would be able to review the company's activities even in industries not currently covered by the law.
Japanese investors recognized as being under the influence of a foreign government would also be considered "foreign investors," and will be required to submit documents of their businesses to the government.
The envisioned panel is to be co-chaired by the Ministry of Finance and the National Security Secretariat at the Cabinet Office, with representatives from the Foreign Ministry, the Ministry of Economy, Trade and Industry and the Defense Ministry, among others, also taking part.
Previously such screening was carried out by the Finance Ministry and the ministry or agency in charge of the industrial sector a foreign entity seeks to invest in.
Reflecting the government's increased vigilance even before the law's enactment, it called on the Asia-based private equity firm MBK Partners in April to shelve its planned acquisition of Makino Milling Machine Co., a major machine tools maker, citing national security concerns.
The government's recommendation, issued in line with the foreign exchange and trade control law, came amid concern that the proposed takeover could lead to sensitive information related to machine tool technology falling into foreign hands.
In the United States, CFIUS is authorized to decide whether investments in the country by foreign companies pose security risks.
If the committee identifies problems with such investments, it can advise the president to block them.
In recent years, CFIUS was involved in examining the bid by Nippon Steel Corp. to acquire United States Steel Corp.
