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The government is preparing to draw up legislation aimed at boosting oversight of industries and technologies considered important from an economic security perspective, it was learned Tuesday.

The legislation will integrate matters regarding foreign investment currently set out in laws dealing with specific industries, such as broadcasting and aviation, and will center on the foreign exchange and foreign trade law, which regulates investments in Japanese companies by foreign capital.

It is also expected to include measures to boost the supply chains of four strategically important products, including semiconductors.

The government hopes to submit the bill to next year’s ordinary Diet session.

The legislation is aimed at preventing the outflow of technologies and information, by strengthening cooperation among ministries and agencies, as strategic technologies and infrastructure become ever more important amid the pandemic crisis and competition between the United States and China for global dominance.

The Cabinet Secretariat began drawing up a draft bill on the basis of the foreign exchange law, which calls for prior screenings of investments by foreign capital of 1% or more in a Japanese company deemed to be important.

Discussions on the bill will be attended by representatives of the finance and industry ministries, which oversee the foreign exchange law, as well as by officials of the communications and infrastructure ministries and the Financial Services Agency, which oversee individual corporations.

The government will aim to establish a system to oversee investments and creations of systems by foreign capital in sectors such as broadcasting, telecommunications and banking from an economic security perspective.

The new legislation will also designate semiconductors, sophisticated batteries for electric vehicles, rare earths and medical supplies as important areas of supply, in light of the COVID-19 pandemic and progress in social digitalization and decarbonization.

The government will consider measures to support increasing procurement of such supplies from allies and friendly nations.

The legislation is also expected to include a “secret patent” system in which patent applications for high-level technologies that can be used for military purposes will be hidden from the public for a certain period of time.

Last year, the government revised the foreign exchange law to tighten the threshold, from 10% to 1%, at which foreign investments in companies deemed important for security reasons would require prior screening.

While restrictions on foreign investment exist under laws governing certain industry sectors, including broadcasting, it is said to be difficult at present to accurately grasp the extent of foreign investment in Japanese companies.

“By setting up the legislation and making it possible to use arrangements under the foreign exchange law, it will be easier to respond to movements in foreign capital,” a senior official at one regulatory agency said.

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