An earlier draft of this article was presented at the 1989 annual meeting of the Association for Asian Studies in Washington, D.C. We thank Kent E. Calder, Peter J. Katzenstein, Richard W. Rabinowitz, Michael R. Reich, and Richard J. Samuels for their useful comments. We also thank the Research Institute, Ministry of International Trade and Industry, Tokyo, Japan, for research assistance during Encarnation's residence there in 1988-1989.

1. For comparisons of Brazil, India, and Korea, see Encarnation, Dennis J., Dislodging Multinationals: India's Strategy in Comparative Perspective (Ithaca, N.Y.: Cornell University Press, 1989), especially pp. 1–31 and 176–225Google Scholar. These comparisons inform much of our subsequent analysis of bargaining relations among MNCs, the state, and local enterprises in Japan.

2. By capital, following Japanese usage, we are referring principally to foreign equity, typically in the form of foreign direct investment (as distinct from portfolio investment) in local affiliates of MNCs seeking to exercise a modicum of managerial control. In addition, as discussed below, liberalization also touched portfolio investments and other foreign exchange transactions as well as trade in merchandise and less tangible technology. Beginning in the late 1960s, liberalization often extended across broad product groups or at times was targeted toward individual sectors in manufacturing (automobiles) and services (banking).

3. See Calder, Kent E., “Japanese Foreign Economic Policy Formation: Explaining the Reactive State,” World Politics 40 (07 1988), pp. 518–19CrossRefGoogle Scholar. See also Calder, Kent E., Crisis and Compensation: Public Policy and Political Stability in Japan, 1949–1986 (Princeton, N.J.: Princeton University Press, 1989), especially p. 450.Google Scholar

4. Calder (a political scientist), for example, finds support for his argument in the work of Saxonhouse (an economist), who concentrates primarily on U.S. initiatives to explain Japanese policies. See Saxonhouse, Gary, “The World Economy and Japanese Foreign Economic Policy,” in Scalapino, Robert, ed., The Foreign Policy of Modern Japan (Berkeley: University of California Press, 1977), pp. 281–318.Google Scholar

5. Throughout this article, Japanese names are given in the Japanese style with the family name listed first.

6. See Masataka, Kōsaka, “The International Economic Policy of Japan,”Google Scholar in Scalapino, , The Foreign Policy of Modern Japan, pp. 211 and 214Google Scholar. In his analysis (p. 224), Kōsaka goes so far as to assert that “taking initiatives in shaping and maintaining international order cannot become a basic task for the Japanese. Their task is to catch up with their superiors.”

7. See Terutomo, Ozawa, “Japanese Policy Toward Foreign Multinationals: Implications for Trade and Competitiveness,” in Pugel, Thomas, ed., Fragile Interdependence (Lexington, Mass.: D. C. Heath, 1986), p. 147Google Scholar; and Abegglen, James and Stalk, George Jr., Kaisha, the Japanese Corporation (New York: Basic Books, 1985), p. 217.Google Scholar

8. Ryutarō, Kōmiya, “Direct Foreign Investment in Postwar Japan,” in Drysdale, Peter, ed., Direct Foreign Investment in Asia and the Pacific (Canberra: ANU Press, 1972), p. 152.Google Scholar

9. For Hugh Patrick's “Comments” on Kōmiya Ryutarō's “Direct Foreign Investment in Postwar Japan,” see ibid., p. 168.

10. Henderson, Dan Fenno, Foreign Enterprise in Japan (Tokyo: Charles E. Tuttle, 1975), p. 237.Google Scholar

11. See, for example, Kōmiya, , “Direct Foreign Investment in Postwar Japan”Google Scholar; Kōsaka, , The International Economic Policy of JapanGoogle Scholar; and Ozawa, , “Japanese Policy Toward Foreign Multinationals.”Google Scholar

12. See Yoshino, Michael, “Japan as Host to the International Corporation,” in Frank, Isaiah, ed., The Japanese Economy in International Perspective (Baltimore, Md.: Johns Hopkins University Press, 1975), pp. 277 ffGoogle Scholar. For further support of this view, see Ozawa, , “Japanese Policy Toward Foreign Multinationals,” pp. 149 ff.Google Scholar

13. Hollerman, Leon, Japan Disincorporated: The Economic Liberalization Process (Stanford, Calif.: Hoover Institution Press, 1988), p. xii.Google Scholar

14. Johnson, Chalmers, MITI and the Japanese Miracle: The Growth of Japanese Industrial Policy, 1925–1975 (Stanford, Calif.: Stanford University Press, 1982), p. 24.Google Scholar

15. Johnson, , MITI and the Japanese Miracle, p. 279Google Scholar; emphasis added.

16. This can best be seen in the language chosen by the editors of the Nihon Keizai Shimbun in 1974 to discuss events preceding that year's “complete liberalization” (kanzen jiyūka). See, for example, Shimbunsha, Nihon Keizai, Gaishi no sōgō senryaku kanzen jiyūka mokuzen ni sōtenken (The overall power of foreign capital: A general examination of the period just preceding complete liberalization) (Tokyo: Nihon Keizai Shimbunsha, 1974).Google Scholar

17. Calder, , “Japanese Foreign Economic Policy Formation,” p. 522.Google Scholar

18. Abegglen, and Stalk, , Kaisha, the Japanese Corporation, p. 223.Google Scholar

19. Johnson, , MITI and the Japanese Miracle, pp. 278–79.Google Scholar

20. The work of Rosenbluth suggests that the state's reactions to the domestic intermediation of foreign demands may also explain patterns of financial deregulation beyond 1980. See Rosenbluth, Frances McCall, Financial Politics in Contemporary Japan (Ithaca, N.Y.: Cornell University Press, 1989), pp. 50–95Google Scholar; and Rosenbluth, Frances McCall, “Foreign Pressure and the Liberalization of Japan's Financial Markets,” paper presented at the 1989 annual meeting of the Association for Asian Studies,Washington, D.C.Google Scholar

21. The following discussion of Japanese foreign investment policies before and during the Allied occupation draws extensively from Mason, Mark, “United States Direct Investment in Japan: Studies in Government Policy and Corporate Strategy,” Ph.D. diss., Harvard University, 1988.Google Scholar

22. Mason, Mark, “Foreign Direct Investment and Japanese Economic Development,” Business and Economic History, 2d series, vol. 16, 1987, p. 95.Google Scholar

23. Ibid. Note that this figure may represent an upper limit, since other estimates range from $57 million in 1931 to between $75 and $100 million in 1934.

24. U.S. Department of Commerce, cited in ibid. See also Wilkins, Mira, “American–Japanese Direct Foreign Investment, 1930–1952,” Business History Review 56 (Winter 1982), pp. 498–510.CrossRefGoogle Scholar

25. In automobiles, for example, General Motors and Ford supplied all but 2.5 percent of the Japanese automobile market in 1930 by shipping “knocked-down” kits from America and assembling them in Japan. See Wilkins, , “American–Japanese Direct Foreign Investment,” pp. 499–500.Google Scholar

26. For evidence, see U.S. Department of Commerce, Office of Business Economics, U.S. Business Investments in Foreign Countries (Washington, D.C.: Government Printing Office, 1960), especially Tables 5 and 6, pp. 93–94Google Scholar; and Lewis, Cleona, America's Stake in International Investments (Washington, D.C.: Brookings Institution, 1938).Google Scholar

27. Wilkins, , “American–Japanese Direct Foreign Investment,” p. 506.Google Scholar

28. So-called automatic approvals under the FIL, which amounted to exemptions from this regulatory machinery, were typically limited to foreign direct investments of insignificant scale.

29. See Article 8 of the FIL, Law no. 163 of 1950. Remittance of principal, not permitted during the occupation, was limited to 20 percent per year in 1952 and thereafter.

30. To avoid the FIL, ITT and other MNCs that had first entered Japan through minority foreign-owned affiliates typically reentered Japan through minority affiliates after the war.

31. The Japanese government reaffirmed such prohibitions informally during the latter days of the occupation and codified them as official policy in late 1952.

32. Calculations are based on data from the Foreign Capital Research Society, Bank of Japan, “Statistical Data and List of Principal Cases of Foreign Capital Investment in Japan as of the End of 1952,” Tokyo, n.d., p. 21. U.S. Department of Commerce data report that total U.S. foreign direct investment in Japan stood at $18.6 million in 1950. See U.S. Department of Commerce, “Foreign Investments of the United States,” Survey of Current Business (Supplement, 1953), p. 48Google Scholar. Following the Americans, the British continued to rank second in postwar investment (with nearly one-eighth of the total), as they had before the war.

33. MITI, Gaishi dōnyū nenkan (Annual report on foreign capital investment in Japan) (Tokyo: Shōkō Kaikan, 1969), p. 15Google Scholar, as reported in Ozawa, , “Japanese Policy Toward Foreign Multinationals,” p. 148.Google Scholar

34. In a sensational case of the late 1950s, Singer Sewing Machines, the prewar market leader, sought to overcome MITI's objections to its expansion by proposing to merge its own repossessed assets with the assets of a leading Japanese company (Pine) to form a joint venture. MITI, intent on fostering a domestic sewing machine industry, feared that the proposed joint venture would do little to stop Singer from recapturing its old market position. It therefore imposed severe production quotas before approving the venture. See Johnson, , MITI and the Japanese Miracle, p. 246.Google Scholar

35. Information is based on Otis Elevator Company records and on Mason's interviews with the following: Dizer, William, Tokyo, 1986Google Scholar; Birkenstock, James, Boynton Beach, Fla., 1987Google Scholar; and Rabinowitz, Richard, Cambridge, Mass., 1988.Google Scholar

36. In addition, beginning in 1949, almost any foreign company could establish a branch office in Japan, since the FIL did not regulate such business entities. In practice, however, this mode of entry proved unpopular because the FECL empowered the Ministry of Finance, at its discretion, to block both the outflow of remittances from the branches and the inflow of investments to them. The Ministry of Finance typically rejected the inflows if the branch attempted to engage in manufacturing, as distinct from sales. See Ozaki, Robert S., The Control of Imports and Foreign Capital in Japan (New York: Praeger, 1972), p. 111.Google Scholar

37. The commitment to “national treatment” was explicitly contained in the most-favored-nation clauses of the U.S.–Japan Treaty of Friendship, Commerce, and Navigation (FCN) of April 1953 and was extended to Great Britain after April 1960 through the most-favored-nation clauses contained in its own bilateral FCN treaty with Japan. For a discussion of the Anglo–Japanese treaty, see Henderson, , Foreign Enterprise in Japan, p. 270.Google Scholar

38. Our discussion of Coke's entry into and expansion in the Japanese market draws extensively from the following: the official company history of Coke-Japan; the memoirs of Coke's manager in Japan during much of this period; Mason's correspondence with that manager; and Mason's interview with Coke's first Japanese bottler (Takanashi Nisaburō), Tokyo, 1989. See also Coca-Cola (Japan) Company, Ltd., The First Thirty Years, Tokyo, 1987, especially pp. 15–24Google Scholar; and Moss, Frank H., “The History of Coca-Cola in the Japanese Market as I Lived and Worked It,”Google Scholar n.d., Coca-Cola Archives, Atlanta, Georgia.

39. After making informal inquiries for years, the bottler (Takanashi Nisaburō) finally applied formally to MITI in 1953 for a permit to import a limited amount of Coke concentrate.

40. For example, the government forbade Coke advertising in the domestic media; it established a minimum price for each bottle of Coke sold and, on top of this price, levied a heavy luxury tax; and it restricted Coke sales to a small number of “designated outlets.”

41. Moss, , “The History of Coca-Cola in the Japanese Market,” p. 107.Google Scholar

42. Coke's Tokyo bottler also contributed to this fund, as did Pepsi's local representatives. The latter contributed to facilitate Pepsi's parallel, though less dramatic, expansion in the Japanese market.

43. Statement attributed to Sahashi Shigeru, deputy director of MITI's Heavy Industries Bureau, and reprinted in Johnson, , MITI and the Japanese Miracle, p. 245.Google Scholar

44. Ibid.

45. Johnson, ibid.

46. Information is based on the following: Mason's interview with IBM's chief negotiator, James Birkenstock, Boynton Beach, Fla., 1987; and Nihon IBM, Nihon ai bi emu gojūnen shi (A fifty-year history of IBM Japan), Tokyo, n.d., chap. 3, pp. 26–27.Google Scholar

47. The remaining 1 percent equity in IBM-Japan went to the Japanese directors of that subsidiary. This formula allowed MITI to claim that it had not compromised the FIL by permitting a wholly foreign-owned subsidiary to be established.

48. Mason's interview with James Birkenstock, Boynton Beach, Fla., 1987.

49. Ibid.

50. Ibid.

51. Indeed, according to recently declassified documents from the U.S. National Security Council, what economic initiatives the U.S. government did take toward Japan were primarily aimed at assuring open overseas markets for Japanese exporters and related conditions to promote both the development and the self-reliance of the Japanese economy. See, for example, two separate documents both entitled “U.S. Policy Toward Japan” in NSC 5516, dated 29 March 1955, and NSC 6008, dated 20 May 1960.

52. Mason's interview with William Dizer, Tokyo, 1986. By 1960, DuPont received Japanese government permission to enter into a joint venture with a potential Japanese competitor.

53. Mason's interview with Ambassador Edwin O. Reischauer, Cambridge and Belmont, Mass., 1988.

54. Ibid.

55. Total foreign direct investments between 1950 and 1965 did not exceed $750 million, of which roughly one-third went to FIL-approved projects. We surmise that the remaining $500 million or more entered yen-based companies. For these data, see OECD, Committee for Invisible Transactions, Liberalisation of International Capital Movements: Japan (Paris: OECD, 1968), pp. 25–28.Google Scholar

56. MITI, Gaishi dōnyū nenkan, p. 18.Google Scholar

57. Kōmiya, , “Direct Foreign Investment in Postwar Japan,” p. 151.Google Scholar

58. OECD, Liberalisation of International Capital Movements, p. 25.Google Scholar

59. Although the Japanese government did provide FIL validation for certain IBM-Japan activities, authorities did not provide the foreign exchange guarantees necessary for IBM to repatriate abroad its yen-denominated profits. As a result, IBM-Japan represented an early example of a yen-based company, one formed before 1956 and the implementation of “national treatment” provisions in the U.S.–Japan Treaty of Friendship, Commerce, and Navigation. Coke, on the other hand, set up a yen-based company to supply the civilian Japanese market after 1956.

60. MITI, Gaishi dōnyū nenkan, p. 18.Google Scholar

61. Ibid.

62. Ozawa, , “Japanese Policy Toward Foreign Multinationals,” p. 150.Google Scholar

63. Beginning on 1 July 1963, all “yen-based” entries were subjected to a control scheme virtually identical in practice to the FIL regulation system.

64. Johnson, , MITI and the Japanese Miracle, p. 276.Google Scholar

65. Ibid.

66. Hitachi became the second Japanese semiconductor company in 1965, followed in 1966 by Toshiba and others.

67. As Johnson notes in MITI and the Japanese Miracle (p. 276), foreign pressures had been building steadily during 1965, as the slowness of Japan's compliance with the OECD's capital liberalization code became apparent to foreigners.

68. See, for example, Secretary John Connor's comments at a joint meeting of the ACCJ and the American-Japan Society, reported in the Journal of the ACCJ, August 1966, pp. 25–29.Google Scholar

69. See, for example, the following articles drawn from the Journal of the ACCJ: “The United States Investor in Japan,” Journal of the ACCJ May 1964, pp. 4–6Google Scholar; “U.S. Capital Transactions in Japan,” Journal of the ACCJ March 1964, pp. 14 ff.Google Scholar; “High Adventure in Joint Ventures,” November 1965, pp. 10 ff.Google Scholar.; “Editorial,” March 1967, pp. 5 ff.Google Scholar.; and “Japan's Capital Liberalization at the Crossroads,” June 1967, pp. 16–17.Google Scholar

70. Hoshii, Iwao, “Japan's Liberalization of Direct Investment,” Journal of the ACCJ, 03 1967, p. 12.Google Scholar

71. At least as early as 1964, the Nihon Keizai Shimbun employed bold headlines to announce actual and expected changes in foreign capital controls (see, for example, its issue of 19 January 1964) and to announce visits by prominent foreign industrialists suspected of probing the market for investment prospects. The full spectrum of periodicals and newspapers soon joined in the public debate.

72. Nihon Keizai Shimbun, 27 December 1966.Google Scholar

73. Ibid., 13 September 1966.

74. Ibid., 13 December 1966.

75. Ibid., 31 January 1967.

76. Horie Shigeo, chairman of the Board of the Bank of Tokyo, told Japanese readers of the magazine Tōyō Keizai, for example, that a “decision” about capital liberalization “should be made strictly on the basis of autonomous judgement as to whether it will prove to be a plus to the Japanese economy in the future or not.” See Journal of the ACCJ, April 1967, p. 12.Google Scholar

77. In addition to the Liberal Democratic party, these organizations included the Economic Association (Keizai Doyūkai), the Japan Chamber of Commerce, the Kansai Economic Association, the Kansai Economic Federation, the Nagoya Chamber of Commerce, the Central Committee of the Organization of Small- and Medium-Sized Enterprises, and the Osaka Chamber of Commerce. See Ministry of Finance, International Finance Bureau, “Shihon jiyūka ni kansuru gaishi shingikai tōshin kankei shiryōshū oyobi gijiroku” (Minutes and collected materials relating to the reports of the Foreign Investment Deliberation Council concerning capital liberalization), Tokyo, July 1967.

78. Japan Economic Journal, 6 June 1967.Google Scholar

79. Mason's interview with Takeyama Yasuō, former expert commissioner, FIDC, Tokyo, 1986.

80. Japan Economic Journal, 2 May 1967.Google Scholar

81. Ibid.

82. The Japan Times, 7 June 1967, p. 7.Google Scholar

83. Under these new rules, no single foreign shareholder could own more than 7 percent in an existing Japanese company; the earlier limit had been 5 percent. Three or more foreign shareholders could now hold up to 20 percent of the equity in any existing Japanese company that operated in a so-called nonrestricted industry, up from 15 percent under earlier rules. Otherwise, if the Japanese company operated in a so-called restricted industry, combined foreign shareholdings could not exceed 15 percent, up from 10 percent earlier. The restricted industries included several utilities (water, electricity, gas, and broadcasting), most of the transportation sector (road, rail, railway containers, marine, and harbor), some extractive industries (fishery and mining), and the entire financial sector (trust accounts, mutual funds, commercial banking, central banking, and foreign exchange).

84. Quoted from a memorandum entitled “The July 1, 1967 Capital Liberalization Program—A Selective Analysis and Evaluation” and included in Rabinowitz, Richard W., ed., The Law of Foreign Investment in Postwar Japan: Materials for a Course in Comparative Law, part X (Cambridge, Mass.: Harvard Law School, 1988), p. 67.Google Scholar

85. Japan Economic Journal, 6 June 1967, p. 3.Google Scholar

86. Ibid., 14 May 1968.

87. Pearl, Allan, “Liberalization of Capital in Japan—Part II,” Harvard Law Review 13 (Spring 1972), p. 269.Google Scholar

88. Encarnation, Dennis J., “Cross-Investment: A Second Front of Economic Rivalry,” in McCraw, Thomas K., ed., America Versus Japan: A Comparative Study of Business-Government Relations (Boston: Harvard Business School Press, 1986), p. 123Google Scholar. Japan's largest producer, then and now, was the country's first entrant, NEC, with 7 percent of the Japanese market in 1968.

89. Akio, Morita, Made in Japan (New York: E. P. Dutton, 1986), p. 193.Google Scholar

90. See Nihon Keizai, various issues; Abegglen, and Stalk, , Kaisha, the Japanese Corporation, pp. 221–22Google Scholar; and Morita, , Made in Japan, p. 193.Google Scholar

91. Nikkei Bijinesu, 9 March 1981, pp. 147–54.Google Scholar

92. In fact, among Texas Instruments' foreign competitors, Fairchild was the first to license its semiconductor technology to a Japanese firm (NEC, in 1959) and the second (after Texas Instruments) to establish an assembly plant (in 1969) in the Japanese archipelago. However, that wholly foreign-owned transistor and diode assembly plant was established in Okinawa, still a U.S. protectorate with preferential access to the Japanese market. Earlier, MITI had refused to allow Fairchild to establish its subsidiary on the Japanese mainland; so when Okinawa reverted to Japanese control in May 1972, MITI forced Fairchild to merge its plant in a joint venture with a Japanese competitor. By then, National Semiconductor had also established a wholly foreign-owned plant in Okinawa after failing to secure MITI's approval to enter the Japanese mainland. But unlike Fairchild, National Semiconductor refused to reorganize as a joint venture after 1972. For the evolution of foreign investment in the Japanese semiconductor industry, see Encarnation, , “Cross-Investment,” p. 124.Google Scholar

93. Mason's interview with Rabinowitz, Richard, Cambridge, Mass., 1988.Google Scholar

94. In addition to computers, exempted industries included aircraft, atomic energy, explosives, weapons, space development, and petrochemicals. See Japan Economic Journal, 14 May 1968.Google Scholar

95. Henderson, , Foreign Enterprise in Japan, pp. 254–68.Google Scholar

96. Japan Economic Journal, 11 February 1969.Google Scholar

97. Ibid., 16 January 1968 and other issues.

98. Nihon Keizai Shimbun, 11 November 1968Google Scholar, as quoted in Journal of the ACCJ, February 1969, p. 30.Google Scholar

99. Pearl, , “Liberalization of Capital in Japan,” p. 269.Google Scholar

100. See Shimbun Kōgyōbu, Nihon Keizai, Kokusan wa doko e yuku ka: Gaishi jōriku to saihensei (Where is domestic manufacturing headed? The invasion of foreign capital and reorganization) (Tokyo: Nihon Keizai Shimbunsha, 1969), p. 1Google Scholar; and Tadaaki, Yoshii, Mitsubishi jidōsha kōgyō (Mitsubishi Motor Company) (Tokyo: Asahi Sonorama, 1980), pp. 35–41.Google Scholar

101. See Johnson, , MITI and the Japanese Miracle, pp. 172–73Google Scholar; and Duncan, William C., U.S.–Japan Automobile Diplomacy: A Study in Economic Confrontation (Cambridge, Mass.: Ballinger, 1973), especially pp. 31–52 and 83–95.Google Scholar

102. As initiated in phase one, no single foreign shareholder could own more than 7 percent in an existing Japanese company, whose total foreign shareholdings could now reach 25 percent (up from 20 percent in phase one) only if that company operated in a so-called nonrestricted industry. Otherwise, if that company operated in a restricted industry, total foreign shareholdings still (as in phase one) could not exceed 15 percent.

103. Journal of the ACCJ, October 1970, p. 10.Google Scholar

104. Pearl, , “Liberalization of Capital in Japan,” p. 269.Google Scholar

105. Japan Economic Journal, 15 June 1971 and other issues.Google Scholar

106. Up from 7 percent in phase one, such individual foreign shareholdings in existing enterprises could still not total more than 25 percent in nonrestricted industries or 15 percent in restricted industries.

107. Japan Economic Journal, 14 January 1969.Google Scholar

108. Encarnation, , “Cross-Investment,” p. 124.Google Scholar

109. As discussed by Encarnation (ibid.), the plight of prospective investors in the midst of liberalization is well illustrated in the semiconductor industry. Among Texas Instruments' foreign competitors, we have already noted that only two—National Semiconductor and Fair-child—established manufacturing plants in the Japanese archipelago before the mid-1980s. Since both had failed to secure MITI's approval to establish wholly foreign-owned plants on the Japanese mainland, the two established wholly-owned subsidiaries in Okinawa when it was still a U.S. territory enjoying preferential access to the Japanese market. But once Okinawa reverted in 1972 to Japanese control, National Semiconductor closed its plant rather than satisfy MITI's demand that it form a joint venture with a Japanese company. By contrast, Fairchild reluctantly complied with MITI's demand and established what proved to be an unstable joint venture that disbanded in 1977.

110. See U.S. Department of Commerce, Selected Data on U.S. Direct Investment Abroad, 1950–76 (Washington, D.C.: Government Printing Office, 1977), pp. 1, 21, 24, and 25Google Scholar. In 1974, U.S. stocks in Japan were valued at $3.3 billion.

111. Lipsey, Robert E., “Changing Patterns of International Investment in and by the United States,” in Feldstein, Martin, ed., The United States in the World Economy (Chicago: University of Chicago Press, 1988), pp. 488–92.Google Scholar

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113. Encarnation, , “Cross-Investment,” Table 4-3, p. 126.Google Scholar

114. Japanese foreign direct investment in the United States, for example, suddenly began to rise in 1968, the year following the start of Japanese capital liberalization. See Heller, H. Robert and Heller, Emily E., Japanese Investment in the United States, with a Case Study of the Hawaiian Experience (New York: Praeger, 1974), p. 75.Google Scholar

115. In total, seventeen product groups became subject to separate liberalization schedules. Computer manufacturing, sales, and rental, which formed one of these groups, were to be liberalized between August 1974 and November 1975. Information-processing products, which formed a second group, were to be liberalized between December 1974 and March 1976. Finally, several other industries were to remain exempt from liberalization; these included agriculture, forestry and fishery, petroleum refining, leather manufacturing, and mining (except for minority foreign and equal-partnership joint ventures). See ACCJ and the Council of the European Business Community, “Direct Foreign Investment in Japan: The Challenge for Foreign Firms,” Tokyo, September 1987, p. A-9.

116. The FECL was amended to effect these changes in December 1979, although the amendment (Law no. 65 of 1979) was not enacted until December 1980, a full year later.

117. Article 27, Chapter 5, FECL, Law no. 228 of 1949, as amended.

118. See Encarnation, , “Cross-Investment,” Table 4-1, p. 119, and p. 136Google Scholar. By 1981, MNCs owned a majority of the equity in only about one-third of their Japanese manufacturing affiliates, up from one-sixth in 1974.

119. ACCJ, “U.S. Manufacturing Investment in Japan,” Tokyo, 31 05 1979, pp. 17–32 and Exhibit 10.Google Scholar

120. In transport equipment, for example, U.S. parents owned majority shares in less than one-tenth of their Japanese affiliates. In nonelectrical machinery, they owned majority shares in less than one-fourth.

121. Other acts of liberalization in specific sectors, ranging from financial services to telecommunications and Pharmaceuticals, followed later in the decade. For an analysis of their impact on foreign investment in Japan, see Encarnation, Dennis J., Why Persistent Trade Deficits? Foreign Investments by American and Japanese Multinationals (forthcoming).Google Scholar

122. Motoshige, Itoh and Kazuharu, Kiyono, “Foreign Trade and Direct Investment,” in Ryutarō, Kōmiya et al. , eds., Industrial Policy of Japan (Tokyo: Academic Press, 1988), p. 166.Google Scholar

123. The interactions between these MNCs and modern Japan are the subject of a more extended treatment in Mason, Mark, Access Denied: American Multinationals and Japan, 1930–1980 (Cambridge, Mass.: Council on East Asian Studies, Harvard University, forthcoming).Google Scholar