Recommendations of the
EU-Japan Business Dialogue Round Table
to the Leaders of the EU and Japan
Brussels
May 27-28, 2003
“New Challenges for Sustaining Growth and Competitiveness:
Promoting Mutual Investment
andSecuring Benefits From EU Enlargement”

The EU-Japan Business Dialogue Round Table held its annual meeting in Brussels on 27 and
28 May 2003 in the presence of Commissioner Liikanen, and Mr. Tetsuro Yano, Senior ViceMinister for Foreign Affairs (MOFA), Mr. Kouya Nishikawa, Parliamentary Secretary for
Economy, Trade & Industry (METI) and Mr. Shinichi Nabekura, Vice-Minister for Policy
Coordination, Ministry of Public Management, Home Affairs, Posts & Telecommunications(MPHPT), under the co-chairmanship of Mr. Yotaro Kobayashi and Viscount Etienne
Davignon.
The Members of the Round Table noted the positive impact of the Recommendations of the
EU-Japan Round Table in 2002 on investment and trade flows, while highlighting remaining
obstacles. They regret that some of their previous Recommendations are still not fully
implemented and that the EU-Japan economic relationship has not reached its full potential.
The Members emphasised the need to follow up recent commitments to promote an increasein mutual trade and investment with concrete measures designed to open markets andfacilitate commercial activity. Only in this way will the benefits of increased trade andinvestment be realized.

List of contents
Part I: Outline of the Recommendations
Policy Statement concerning the World Trade Organization
Part II: Key Points of the Recommendations of :
ο
Working Party on Trade & Investment
οWorking Party on Accounting & Tax Issues
οWorking Party on Information Society

1PART IThe Members welcomed the Declaration of the EU-Japan Summit in Athens on 2 May,
relating to bilateral economic relations, and in particular the call for considerable potential for
growth in two-way flows of trade and investment. They noted with interest the results of thelast EU-Japan Summit; namely - as far as Trade is concerned - the Summit agreed to launchcloser bilateral dialogue in the areas of intellectual property protection, government
procurement, access to medicines for developing countries and aviation-related technologicalmatters.
1. Investment - Call for FDI Agreement
In order to accelerate the implementation of the “Japan-EU Initiatives on Investment”, in their
Summit statement the authorities of Japan and the EU “encourage the close involvement of
the private sector, in particular the EU-Japan Business Dialogue Round Table”.
For their part, the Members have responded positively to this request and will take allnecessary steps. For many years they have attached great importance to this question, and inPart II of this document they set out precise suggestions that could foster FDI. The idea ofasking the EU and Japan to negotiate a “FDI Enhancement Agreement” was adopted by theplenary in order to provide a more structured framework to mutual efforts to promote andfacilitate and increase in foreign direct investment.
It is envisaged that such an Agreement would go beyond the commitments agreed to at the
recent EU-Japan Summit to address the many ideological and structural barriers inhibiting
foreign direct investment between the EU and Japan in areas such as taxation, corporate
reorganization, human resource allocation and the regulation of commercial activity.
The Members expect that EU and Japanese governments will cooperate with the private
sector, which intends to study the actual key impediments to FDI with the goal of facilitating
the conclusion of this Agreement.
The Members hope that the Special Zones for Structural Reform, which were recently
declared by the Japanese government, will contribute to attract FDI and that further
development is expected in terms of the areas of deregulation and the regions to be covered.

2. EU Enlargement
The Members noted the great potential for growth and investment resulting from the
expansion of the European Union by 10 new Member States, and stressed the importance ofensuring that the Enlargement would benefit both EU and Japan.
Therefore, all efforts should be made, while taking account of WTO rules, in order to avoid
that Enlargement hamper Japanese traders and investors’ interests and activities in theacceding countries.

23. Information and Communication Technology
The EU-Japan Business Dialogue Round Table wishes to stress that the advent of a mass
market for interactive multimedia services over a variety of broadband networks representshuge business opportunities for the ICT sector at large, as well as growth for the whole
economy, and can contribute significantly to advancing economic and social welfare.
The Members are convinced that creating the conditions necessary to encourage thedevelopment and growth of broadband services will play an important role in achieving theInformation Society, which is the goal of e-Japan/e-Europe initiatives.
In order to see continued investment in growth by means of new services provided onbroadband networks, a number of key conditions need to be addressed on the public policyside, both in Japan and Europe.
The Round Table notably urges the European Institutions, the European Union Member
States and the Japanese Government to have pro-active strategies for broadband, to connect
their public administrations to broadband by 2005 and to adopt aggressive broadband
penetration targets.
4. Life Sciences and Biotechnology
The Members recognise that there will be enormous business opportunities in Life Sciences
and Biotechnology, which will comprise the leading industries in the 21st century. However,there are many challenges to realize the business. Considering the interdependence ofeconomies it is a given fact that legislation concerning biotechnology and biotechnologicalproducts needs a global harmonization in the long term. As a prerequisite we have to strive
for a common understanding on risk assessments and approval procedures.
The Members think that a joint seminar on the status of the implementation of the EU andJapan biotechnology strategy would be a good start for the new Working Party. Such aseminar should be held prior to the next Round Table meeting which is expected to take placein Japan next year. The Members count on a strong support for the new activities from theJapanese Government and the EU.
5. Corporate Social Responsibility
Corporate Social Responsibility is taking on increasing importance for European andJapanese companies. The subject was addressed for the first time, and will become a regularfeature of the Round Table.
6. Sustainable Development
The definitions of sustainable Development vary greatly and the Round Table looks forward
to exploring this subject in further depth. Among the issues that may be considered under thisheading are the environment, population and migration, ethical business practices, skills
development, etc. The Round Table may wish to consider forming a working party on theseimportant issues for future consideration, and to make joint recommendations.

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The Members affirm the necessity to establish a global approach to sustainable development,
based on common rules in which all countries participate. In this respect, the EU andJapanese Authorities should further consider constructing the future global framework to
combat climate change.
The Members hope that the EU Member States pay attention to harmonisation, respecting theobjectives, and avoiding excess burden on the related industry when transposing andimplementing the recently published “Waste Electrical & Electronic Equipment” and“Restriction of Hazardous Substances” Directives.
The Japanese Members are concerned about the introduction of the new chemical control by
the EU. The regulation should focus on science-based risk assessment of chemicals andshould be feasible with high cost-performance rates.
The Members also affirm that it is necessary to diversify energy resources by carbon-neutralenergy such as biomass and hydrogen for the realisation of sustainable society. The
diversification of energy resources will lead not only to reduction of CO2 but to creation of
new industries and employment.
7. The economic situation in the EU and JapanThe Members noted the negative effect that the global and domestic economic climate washaving on business development in the EU and Japan.
The Japanese Members expressed concerns about the beleaguered Euro-zone economy where,in particular Germany and France, two large economies in the area, are now faced with therisk of a recession. The Euro-zone economy could suffer significantly from the rapid
appreciation of the Euro in recent weeks, and deflation has now surfaced as a serious risk
factor. In addition, it is restricted to overly tight monetary and fiscal policies.
They urge EU and Member States to take measures in the middle and long term, including
restructuring their economies.
The European Members are deeply concerned about the absence of growth in Japan, and theincreased deflation as revealed by the last official figures and high level of government debt,
and banking sector weakness.
The level of deflation and the absence of growth are of risk for the world economy as awhole, taking into account the size of the Japanese economy in the world economy.
It is crucial that the Japanese authorities implement the structural reforms needed to revitalize
the Japanese economy and alleviate deflationary pressures.
8. EU-Japan Centre for Industrial Cooperation
In this context, the EU-Japan Centre is expected to continue to support the EU-Japan BusinessDialogue Round Table and, more importantly, to adapt its activities to address the newchallenges.

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EU-Japan Business Dialogue Round Table
Brussels, 27-28 May 2003
Policy Statement concerning theWorld Trade Organization

On the occasion of the annual meeting of the EU-Japan Business Dialogue Round Table,business leaders from the European Union and Japan have adopted the following message:
1. We strongly believe that, at a time of growing global political concern and economic
uncertainty, further liberalisation of international trade and investment will have a decisive
impact on the world’s economic growth.
The successful conclusion of a new trade Round negotiation can help restore the unity of theinternational community through the strengthening of the multilateral free trade system, andprovide meaningful answers to our challenges for the sustainable development of a global
economy, the realisation of a highly sophisticated Information Society, and the innovation of
new technologies.
2. Last year, at our annual meeting held in Tokyo in July 2002, we welcomed the start of a
new Round of negotiations and the adoption of a broad and balanced agenda in Doha in
November 2001.
We reaffirm that it would be essential to achieve a successful and timely conclusion of theambitious multilateral trade Round agreed in Doha. We urge all WTO members, including
the European Union and Japan, to accelerate the process to complete negotiations by thetarget date of 1 January 2005. In particular, we encourage the European Union and Japan,
together with the United States, to take a leading role to push the negotiation forward. We
also note that European Union and Japan share a common position on many issues and expect
both parties to pursue closer mutual cooperation.
3. We strongly support the comprehensive approach of a new Round negotiation to address
every negotiation agenda without excluding any specific agenda.
Whilst observing progress in a number of areas, we regret noticing that several deadlines of
the Doha Development Agenda have expired without a consensus having being reached,notably in the areas of Agriculture, Special and Differential Treatment, and TRIPs and
Health. An agreement in these three areas would have been extremely beneficial, not only interms of progress in the Round, but also for the specific economic and social significance of
the issues involved.
4. We encourage all WTO members to achieve a successful outcome of the Fifth WTO
Ministerial Conference in Cancún, Mexico, in September 2003, to deliver the necessary
progress，including the formal launch of negotiations on all the Singapore issues, which
would allow for the timely completion of the Round under the single undertaking approach.
We are prepared to make further efforts in promoting awareness on the importance of, andseeking support for, all the Singapore issues.
55. We recognise the central role of developing countries for the success of the new Round.
We therefore expect the negotiations to incorporate consideration of the needs of developing
countries in the process, and encourage the European Union and Japan to continue the effort
for “capacity building,” in order to allow more effective participation of developing countries
in the WTO’s decision-making process.
6. We emphasize that all WTO members should fully comply with all their WTO
commitments.
We are deeply concerned about the emerging trend of protectionism and the move to tradedistorting measures, which overshadow the WTO negotiation process. We ask all countries toconform to multilateral rules, and call for the European Union and Japan to confront
protectionism by reinforcing the multilateral principles of openness and non-discrimination.
Recognizing the importance of intellectual property rights in today’s economy, we urge inparticular the European Union and Japan to monitor the infringements of these rights, and to
take appropriate actions, when necessary.
7. We welcome the fact that the European Union and Japan are constructively working
together with the aim of making progress in the negotiations and achieving successful results.
We encourage the European Union and Japan to continue to maintain close contacts with therepresentatives of the private sector.
8. We hereby agree that we shall continue to study individual agenda items in detail, and toprovide policy proposals from time to time in response to the progress of government-togovernment negotiations.
________________________

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PART IIThe key points of the Recommendations of the Round Table currently being held arepresented in this section, which lists the gist of the Recommendations by both EU andJapanese Round Table Woking Parties.
Please refer to each Working Party Recommendation package for full text.

Working Party on Trade & Investment§ 1. Recommendations to the EU and Japan
Joint recommendations:
1-EJ-1 Call for the negotiation of a Framework Agreement on the Enhancement of Foreign
Direct Investment (FDI) between the EU and Japan
It is envisaged that this Agreement would contain the following commitments:(1) Expression of unequivocal support toward the enhancement of FDI
1.
2.

The benefits to the EU and Japan for a mutual increase in FDI should be clearly stated
The agreement should contain a commitment to cooperate at the highest level to promote
the benefits of foreign investment to the general public(2) Eliminating tax-related barriers to investment
1. Prevention of double taxationa) An agreement should be concluded providing for an exemption from withholding
taxation on dividend payments, interest and royalty payments among affiliatedcompanies between the EU and Japan.
b) It should be agreed that EU-Japan investments would be mutually exempt fromcontrolled foreign corporation (CFC) taxation. Based on the agreement, the treaties
for the avoidance of double taxation concluded between each EU Member State andJapan should be revised to provide for the mutual exemption of CFC taxation. Abuseof this exemption should be addressed in the treaties.
c) Agreement should be reached to expand the application of the foreign tax credit
system. Based on this agreement, the foreign tax credit systems should be revised in
the EU Member States and Japan.

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2. Transfer pricing taxationa) The EU Arbitration Convention, which provides for arbitration in case of
disagreements among the tax authorities of the EU Member States, should be
extended to include transactions between the EU and Japan.
b) Documentation requirements should be harmonized and simplified and mutuallyacceptable standards of best practice concerning methodologies (including clearerinterpretation of OECD Guidelines) should be developed in order to reduce costs
associated with complying with transfer pricing regulations.
c) Guidelines on unilateral and bilateral advance price agreements (APAs) for
transactions taking place between the EU and Japan should be established. At thesame time, the system should be improved so that it functions more smoothly.
(3) Facilitating business development: human resource considerations
1. An agreement should be reached to speed up work and residence permit acquisition
procedures for intra-company transfers between the EU and Japan, to enable transferredpersonnel to submit applications for permits after entering the destination country, and to
grant the same rights to spouses.
2. A commitment should be made to conclude social security treaties between all theMember States and Japan at the earliest possible date. In addition, ways to expedite theconclusion of such treaties should be studied, including the possible conclusion of amodel social security treaty between the EU and Japan.
(4) Facilitating corporate reorganization: legal and tax perspectives
1. The EU Merger Directive should be expanded with regard to the types of companies andthe types of transactions covered, including transactions involving Japanese companies.
The requirement for firms to hold shares in “shell” companies after reorganization shouldbe abolished in every EU Member State.
2. The Japanese Commercial Code and company laws in the EU member states should be
amended to allow for cross-border share exchanges between the EU and Japan. Relevant
tax laws should also be amended so that tax may be deferred.
(5) Facilitating new business development through regulatory reform
Direct investment should be enhanced by revising regulations concerning market access,including regulations on the transfer of assets, services and intellectual property andregulations on capital, as well as by establishing an open business environment that does notplace new market entrants at a competitive disadvantage.
§2. Recommendations to the EU
Japan-side recommendations:
1-E-1 EU policy on taxation and company organization
1. A common consolidated corporate tax base within the EU should be established as soon
as possible based on uniform tax accounting rules, without a distinctions between thetypes of companies.
82. Tax deferral of unrealized gains on cross-border goodwill transfer between groupcompanies should be allowed. Tax deferral on real property transactions and transfer ofother intangible assets should also be allowed.
3. We support the Report presented by the High Level Group of Company Law Experts(November 2002), which calls for prioritizing a Tenth Company Law Directive, aimed atbuilding a “legal framework for cross-border mergers”, and its early implementation.
4. We welcome the political agreement (January 2003) on the adoption of the directive
aimed at exempting withholding taxation on payments of interests and royalties between
affiliated companies, and expect an early adoption and implementation.
5. We hope a timely adoption of the directive, which allows offsetting the losses ofsubsidiaries/branches against the profits of the parent company.
1-E-2 Smooth movement of workers in the EU
1. Double taxation on contributions and payout of occupational pensions should be
eliminated.
2. We welcome a political agreement (December 2002) on the draft Council Regulation toextend the totalization of basic pensions to non-EU nationals when they move across the
EU countries and expect its early implementation.
1-E-3 Swift decision making of the EU after its enlargement
1. We hope the realization of the EU’s institutional reforms that will enable speedierdecision-making, particularly, the abolishment of unanimity requirements in thelegislation of taxation policy.
2. In the process of the enlargement of the EU, we call for sufficient preparations,publication of roadmaps, timetables or progress, etc. for the smooth transition of customs
duties and value-added taxes in the new Member States.
1-E-4 Reasonable settlement of tariff classifications
1. Tariff classification based on ITA agreement should be applied to IT products designed
utilizing digital or network technology. Especially, reconsideration should be made for
products with multifunctional capabilities by IT technology, since unreasonably classified
cases are observed.
2. We do recommend that multifunctional products based on IT technology be classified
under the ITA products in tariff classification through reasonable discussions at the WCO
conference to be held in the coming fall.
1-E-5 Proposed European Commission regulation on chemicals control
We support the objective of the regulation to protect human health and the environment, buturge the Commission to focus on risk assessment and risk control of chemicals based on
scientific evidence. Obligations under the TBT and other WTO agreements should be taken
into account.
1-E-6 Community patent
We welcome the decision to establish a unified patent system and expect its early adoption
and implementation.

9§3. Recommendations to Japan
Europe-side recommendations:
1-J-1 Promoting economic growth
1. More effective use of monetary and fiscal policy should be made to combat price andasset deflation.
2. More efforts should be made to re-capitalize the banking system and clean-up the badloan situation.
3. Public spending should be redirected into more productive areas of the economy.
1-J-2 Championing business activity at the local level
1. More private sector involvement in the delivery of public services should be encouraged
through the use of PFI/PPP schemes.
2. Local governments should take a more proactive role in attracting investment beyond
current promotion efforts; for example, by offering special tax and/or regulatory
incentives to potential investors.
1-J-3 ~ 1-J-4 Modernizing legal and tax systems to support foreign investment
1. Commercial and tax laws should be revised to allow for cross border stock swaps on a
tax-neutral basis (1-J-3).
2. Legislation before the Diet allowing Japanese and foreign lawyers to form partnerships
and allowing foreign lawyers to employ Japanese lawyers as associates should be
implemented as soon as possible (1-J-4).
1-J-5 ~ 1-J-11 Facilitating business development through regulatory reform
1. Japanese regulators should take a pro-active stance in promoting regulatory transparency
and clarity. As a matter of standard practice, all requests for clarification (including
request for clarification received outside of the “no-action letter system”) should beanswered in writing (1-J-5).
2. Regulatory reform initiatives should be strengthened to promote competitive market
mechanisms and eliminate the regulatory burden associated with introducing new
products into the Japanese market in areas such as telecommunications (1-J-6), banking(1-J-7), food (1-J-8), insurance (1-J-9), in-vitro diagnostics (1-J-10), and animal health (1J-11).
Japan-side recommendations
1-J-12

Tax reform to facilitate investment in Japan

1. A new rule should be established for participation exemption of dividends and capitalgains from taxation
2. Improvements should be made to the CFC tax system

10Working Party on Accounting and Tax Issues[Recommendations to the EU and Japan]
2-EJ-1 ADOPTION OF INTERNATIONAL ACCOUNTING STANDARDS[Joint Recommendation](1)
Involvement in the formation of IAS- We hope that the GOJ and the EC will closely observe the progress of IASB projects, encourage
extensive discussion among all stakeholders, seek to integrate their opinions, and be involved actively inthe formation of IFRS through activities of IOSCO and the Standard Advisory Commission (SAC) with
the IASB.
- Furthermore, to address our particular concerns about performance reporting, we ask the
GOJ and teh
EC to convey our opinions on this subject to the professional bodies advising them, and to the
IASB.
2-EJ-2 TRANSFER PRICING[Joint Recommendation](1)
Implementation of rules consistent with OECD's Transfer Pricing Guidelines(2)
Support for discussion in OECD on the standardization of Advance Pricing Agreements(APA).

[Recommendations to the EU]
2-E-1 ADOPTION OF INTERNATIONAL ACCOUNTING STANDARDS[Joint Recommendation](1)
Progress in implementing IAS
We are pleased that the EU continues to make steady progress towards implementation of
IAS in 2005 for listed companies.
2-E-2 CONSOLIDATED TAX[Joint Recommendation](1)
Single consolidated corporate taxation in the EU’s internal market
We hope that the EC will bring forward further initiatives this year and that the Communication expectedin October 2003 will be issued then.
2-E-3 ELECTRONIC COMMERCE TAXATION[Joint Recommendation](1)
Support transposition by the Member States of Directive 2002/38/EC by 1 July 2003.

[Recommendations to Japan]

112-J-1 ADOPTION OF INTERNATIONAL ACCOUNTING STANDARDS[Joint Recommendation](1)
Progress in implementing IAS
We recommend that the GOJ commits itself soon to IAS and establishes a timetable for
adoption of these standards by listed companies in Japan
2-J-2 CONSOLIDATED TAX[Joint Recommendation](1)
Improvement of the consolidated tax system
We hope that the GOJ will reform the system, abolishing the 2% surtax and allowing thecarrying forward of tax losses in subsidiaries incurred before the system came into effect.
2-J-3 ELECTRONIC COMMERCE TAXATION[Joint Recommendation](1)
Invite the GOJ to intensify its study of OECD’s principles on e-commerce taxation.

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Working Party on Information Society[Joint Recommendations to EU and Japan]
3-EJ-1 The following actions should be promoted to achieve the IT
society aimed at by eJapan/eEurope and to help economic growthand help solve social problems.
(a)Solution of social problems (e.g. unemployment) through the eJapan/eEurope
initiatives(b)
Public authorities at national level should lay down specific national targets forbroadband subscribers(c)Development of solutions and business models(d)Global expansion of high quality broadband networks and ensuring theirinteroperability(e)Creation of business opportunities through cooperation with communities(f)Development of new business models through linkage between
telecommunications and broadcasting with the appropriate regulatory conditions
3-EJ-2 Both the government and private sector should contribute to thesuccessful deployment of broadband; for example, rule-makingof copyright protection.
The private sector should promote the construction and implementation of businessmodels that capitalize on broadband services while the government should promote
policies to develop an environment that facilitates the use of broadband services.
3-EJ-3 It is necessary to monitor the progress of eJapan/eEurope
periodically, and both the government and the private sector
should develop and implement actions to accelerate suchprogress.
Because both technology and markets are subject to dramatic change in an IT society,
it is necessary to monitor the progress of eJapan/eEurope periodically.
3-EJ-4 It is necessary to establish a competitive environment that
stimulates investment in broadband.
Establishment of a competitive environment inspired by competition principles andensuring that a level playing field exists for all markets participants will stimulate
investment in broadband infrastructures and services and foster innovation.

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