EU's Mandelson Blasts Japanese Protectionism

EU Trade Commissioner Peter Mandelson remains a dedicated free trader in this age of rising protectionist sentiment. Call him an idealist--call him quixotic--but Mandelson is still pushing the free trade agenda like it's 1999. His once and probably future run-ins with Chinese trade authorities are famous, especially with the "bra wars" brouhaha. In a visit to Japan, Mandelson did the most un-Asian thing by taking the issue of Japanese protectionism up with his hosts. From 1997 to 2006, it is claimed that Japan was host to the least amount of FDI among OECD countries. Mandelson went on his current rampage (or at least what passes for it in diplomacy) after Japanese authorities were unwilling to let the activist UK hedge fund The Children's Investment Fund double its stake in Japanese electricity company J-Power to 20%. Given my usual aversion to protectionist measures, I still am uncertain whose side to take here as I am not a big fan of interventionist hedge funds, either. Still, there is definitely room for the Japanese to allow in more FDI to shake up the often hidebound corporate culture of the country. From the Financial Times:

Europe’s trade chief rounded on Japan on Monday for exploiting the openness of other economies while erecting barriers to trade and investment at home.

In a combative speech to the EU-Japan Centre of Industrial Co-operation, Peter Mandelson, the European Union trade commissioner, said Japan was “the most closed investment market in the developed world”. Referring to its commitment to increase inbound foreign direct investment, he said: “This is not being translated into reality.” Mr Mandelson’s stern words came after Tokyo rejected, on national security grounds, a proposal by The Children’s Investment Fund, a UK activist fund, to double its stake in J-Power, an electric power wholesaler, to 20 per cent.

Mr Mandelson said he was not referring specifically to the TCI case, but making a wider point about Japan’s low foreign direct investment levels. However, he added: “The risk for Japan is that overseas it is interpreted negatively as another signal that Japan doesn’t welcome foreign investment.”

The country should recognise that investment brought trade, technology and management skills. “We are not talking about fly-by-night short-term players who are going to earn a quick buck at Japan’s expense and then clear off. And that’s how I think Japan views outside investors too much,” he said.

The speech seems likely to provoke strong reaction from sections of the Japanese government. Mr Mandelson cited figures showing that Japan accounted for only 3 per cent of Europe’s $3,000bn (€1,900bn) in accumulated outbound foreign direct investment. Japan’s FDI penetration rate was the lowest among advanced nations and one-seventh of the Organisation for Economic Co-operation and Development average, he said.

Japan’s trade and finance ministries last week issued a statement to accompany their rejection of TCI’s proposal to increase its stake in J-Power, saying: “It is Japan’s fundamental policy to continue liberalisation of investment and to promote investment aggressively.” They said cumulative FDI had risen by Y2,600bn in 2007, the second-highest recorded jump and noted that, of 760 notifications of investments in the past three years, they had rejected just one.

However, Mr Mandelson, in Japan for an EU-Japan summit, suggested that Japan was taking advantage of other countries’ open economies while keeping its own shut. “For every dollar Japan invested in the UK and the Netherlands alone, European companies were able to invest a net total of only three cents in Japan,” he said.