This article was written as of October 2024.

1. Introduction

On September 6, 2024, the Ministry of Economy, Trade, and Industry (METI) announced a draft amendment to the ordinances in connection with the Foreign Exchange and Foreign Trade Act (the "FEFTA"), requiring prior notification (the "Prior Notification System") for technology transfers overseas in 10 fields, including electronic components and semiconductors. The draft amendment is expected to be finalized around mid-October and will take effect after a public notice period, with implementation scheduled for December 2024.

The Prior Notification System targets transactions that enable manufacturing or design overseas using key technologies as outlined below, with the aim of preventing the outflow of technologies in which Japan holds a competitive advantage.

As the background of the Prior Notification System, the risk of technology outflow has increased in recent years, particularly due to the intensification of global technology hegemony struggles; considering the increased difficulty in controlling technology compared to physical goods once leaked, a new technology management scheme based on public-private dialogue is being introduced under the FEFTA to better manage technology transfers.

2. Details of the Prior Notification System

The newly introduced public-private dialogue-based technology management scheme involves the establishment of a prior notification system for the transfer of key technologies that should be strictly managed from a security perspective.

Specifically, businesses intending to engage in transactions with the purpose of providing key technologies overseas through investments in foreign entities, manufacturing consignment or other business activities must submit a report regarding such transaction to the METI before entering into the relevant contract. The report must include details such as the type and content of the technology and the purpose and background of the transaction. Failure to report may result in administrative guidance or improvement orders based on the FEFTA, and if there is a failure to comply with such guidance or orders, or in the case of serious violations, penalties may be applied.

Based on the submitted prior notification report, the public and private sectors will share awareness of the current situation and challenges and consider technology management strategies through evaluating support measures, providing information on concerns, and offering advice on specific countermeasures.

Although, in principle, the goal is to resolve issues through such public-private dialogue, if concerns about technology outflow cannot be resolved, the METI may issue a notice to the business requesting application for a permit. The decision on whether to issue this notice will be made within 30 days of the prior notification, taking into account the results of the public-private dialogue on technology management.

3. Key Technologies Subject to Prior Notification

The transactions subject to prior notification have been narrowed down to those with a high risk, both in terms of the type of technology and the nature of the transactions. The key technologies subject to prior notification are summarized in the table below.

Target Technologies (Following Technologies for Design and Manufacturing)
Electronic Components	Multi-Layer Ceramic Capacitor（MLCC） SAW and BAW filters Electrolytic copper foil Dielectric films Barium titanate powder
Fibers	Carbon fibers Silicon carbide fibers
Semiconductors	Photoresists Non-ferrous metal target materials
Electron Microscopes	Scanning electron microscopes (SEM) and transmission electron microscopes (TEM)

Key Contacts

Taku Matsumoto

Partner

Tokyo Office

Taku Matsumoto specializes in (i) mergers & acquisitions, (ii) antitrust & competition regulation, (iii) economic security and international trade (foreign direct investment), (iv) investments in startup companies and (v) wealth management.

Taku regularly advises clients across numerous industries including finance (banks, securities companies, FinTech and funds), life sciences (pharmaceutical, medical equipment, biotech and nursing), IT (SaaS, quantum technology and sharing services), trading companies, telecommunications, advertising, sports, entertainment, education, real estate, food, manufacturing (automobiles, machinery, chemicals and engineering), logistics, retail, consulting, and resources / energy.

Trending News: Japan Legal Update

Authors Key Contacts	Taku Matsumoto
Issue	Oct 16, 2024