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Japan defends rare-earths industry from unwanted foreign takeovers

Tokyo beefs up economic security for strategically important metals

Recycled cobalt sulfate is seen at an urban mining plant in South Korea.  The metal, along with rare earths, will receive more investment scrutiny in Japan   © Reuters

TOKYO -- Rare-earth metals were added on Wednesday to Japan's list of industries subject to tougher restrictions on foreign investment, as Tokyo attempts to shield a potential weak point in its supply chains.

The measure covers 34 materials, including other strategically important metals such as cobalt and titanium. Foreign investors will be required to notify the government before investing in a variety of connected fields, including mining, building survey ships, component analysis, and construction of ports on remote islands.

Japan imports the bulk of its rare earths, and there have long been concerns about risks to its supply in the event of a conflict. These materials, used in electric motors and other high-tech applications, have only grown in importance in recent years with trends such as the pivot away from fossil fuels. Consequently, Tokyo sees a need to protect companies involved in tapping its domestic resources from possibly problematic investment.

Japan's foreign exchange law requires advance notice of foreign purchases of stakes in companies that are important to national security. Legislation passed in November 2019 slashed the threshold to 1% from 10%.

Tokyo initially designated 12 areas as "core" industries subject to the tightest restrictions, including weapons, nuclear power, rail and cybersecurity. Pharmaceuticals and medical devices were added to the list last year in response to the coronavirus pandemic.

The government and the ruling Liberal Democratic Party have been exploring ways to defend key industries from unwanted takeovers by the likes of China. On top of the advance notice, the LDP is proposing a monitoring system that will allow the government to closely watch companies after foreign investment.

The LDP wants the government to prepare a national strategy for economic security and for parliament to pass comprehensive legislation that puts such a defense mechanism in place. 

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