Japanese METI reviewed Trade Insurance and Investment Act after terrorist attack in In-Amenas in Algeria

By African Bulletin on February 17, 2014

Aiming to support Japanese enterprises’ global business development, Japanese ministry of economy, trade and industry (METI) reported in her official website that the Cabinet has adopted a decision on the Bill for the Act for Partial Revision of the Trade Insurance and Investment Act

On February 7, 2014, the Cabinet decided to approve the Bill for the Act for Partial Revision of the Trade Insurance and Investment Act. In response, the bill is to be submitted to the Diet during the 186th session.

The bill aims to review functions of trade insurance so as to reflect Japan’s current situation, including the increase in recent years of the risk that Japanese enterprises that are developing business overseas will be damaged by war or terrorism in the regions, as seen in the terrorist attack against an enterprise in Algeria in January 2013, and varying transaction forms and fund raising approaches.

1. Background to the revision

As Japanese enterprises have been expanding business overseas in recent years, the risk that they will face war and terrorist attacks in the regions is increasing, as seen in the terrorist attack against an enterprise in Algeria in January 2013. In addition, not only the form of transactions is varying, such as an increase in transactions by Japanese enterprises’ affiliates overseas, but also the form of fund raising approaches, such as loans on a local currency basis, are also becoming diverse day by day.

Against the backdrop to this situation, it is necessary to review the functions of trade insurance and take measures for supporting the development of environments in which Japanese enterprises are able to expand global business in a stable manner.

2. Details of the revision

1) Countermeasures against the risk of war and terrorism

The Trade Insurance and Investment Act (hereinafter referred to as the “Act”) is to be revised to make trade insurance cover the extra cost imposed on Japanese enterprises when their projects for plant construction overseas are disrupted by war or terrorism, such as personnel cost and additional storage charges.

2) Providing support to business activities by Japanese enterprises’ overseas affiliates and other entities

The Act is to be revised to make trade insurance cover business transactions, including exports, by Japanese enterprises’ overseas affiliates or sales bases of Japanese products in the regions.

3) Facilitating fund raising

The Act is to be revised to make trade insurance cover loans (those on a local currency basis) and bridging loans raised by Japanese banks’ overseas offices and overseas banks for Japanese enterprises that wish to use such funds for their projects for resource development and other initiatives in the regions.

4) Other sections to be revised

The Act is to be revised to make trade insurance cover services provided by domestic Japanese enterprises to overseas enterprises in Japan, and also to provide measures for expanding the coverage of entities to which Nippon Export and Investment Insurance (NEXI) offers reinsurance.

Reference: Trade insurance system

The trade insurance system covers the risks that arise from Japanese enterprises’ external transactions, including exports, investment, and loans, which are not covered by private insurance.

Supporting exports:

Supporting export business by Japanese companies
Indemnifying losses caused by uncollectable payments for exports

Supporting investment:

Supporting Japanese enterprises that invest in overseas countries
Indemnifying losses caused by disrupted business activities of overseas enterprises in which Japanese enterprises invest, due to war and other factors

Supporting fund raising:

Supporting Japanese banks to fund projects for resource development in which Japanese enterprises take part
Indemnifying losses caused by borrowers who do not repay

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