By Tsuyoshi Oyabu

Yomiuri Shimbun Staff Writer

The 7 trillion yen acquisition proposal for Seven & i Holdings Co. by Canadian retail giant Alimentation Couche-Tard Inc. $(ACT)$ has had a significant impact not only on the parties involved, but also on Japan's business community.

In an interview with The Yomiuri Shimbun, Shigeru Kitamura, former secretary general of the National Security Secretariat, discussed the inadequacies of Japan's Foreign Exchange and Foreign Trade Law and urged a review on the grounds of national security.

The following is taken from the interview.

ACT's acquisition plan

The Yomiuri Shimbun: How do you view ACT's acquisition plans to date?

Shigeru Kitamura: Among recent acquisitions, I can cite the proposal for Carrefour SA, a major retailer headquartered in France with supermarket chains and other operations worldwide.

The French government rejected the acquisition plan proposed in January 2021, citing food security concerns, including that Carrefour provides approximately 20% of France's food supply, the plan would significantly impact on French farmers in particular and it carried the risk of jeopardizing the jobs of 100,000 Carrefour employees. As a result of this veto, ACT withdrew from the acquisition.

Prior to this, in November 2019, ACT made an acquisition proposal to Caltex Australia Ltd. (now Ampol Ltd.), a company active in the supply of transport fuels and the convenience store business in Australia.

The company's board rejected the proposal, emphasizing its commitment to maximizing shareholder value as an independent company and stating that the proposal undervalued the company.

The Australian government's Foreign Investment Review Board also indicated its intention to closely examine the proposal from the perspective of fuel supply security, as Caltex owns the Lytton refinery, one of the four remaining refineries in Australia. The acquisition did not materialize, with ACT withdrawing.

In reviewing the responses from various countries to acquisition proposals by ACT, it is clear that the acquisitions failed due to opposition from governments, industry groups and local communities. Concerns about national security and the negative impact on various groups, including employees, business partners and local communities, were the main reasons for opposition.

Asymmetry in the systems

Yomiuri: In your opinion, how does ACT view Japan's foreign investment regulations?

Kitamura: Comparing Japan with Canada, where ACT is headquartered, Canada's foreign investment regulations are generally much stricter than Japan's, and the regulatory hurdles for Japanese companies acquiring Canadian companies are extremely high compared to Canadian companies acquiring Japanese companies. There is an asymmetry in the systems.

In Canada, the Canadian Investment Act is the regulatory law governing investment from Japan. A key feature of the act is that both security-based reviews and benefit-based reviews are conducted under the law. The Net Benefit Review regime targets cases where a non-Canadian investor acquires control over a Canadian company with an enterprise value above a certain threshold. The foreign investor is required to file prior application for the review and get approval from the relevant authorities (i.e., the ministers in charge of industry and culture).

Whether a transaction is likely to result in "net benefits" to Canada is determined by considering factors such as the scale and nature of the economic activity in Canada, as well as the degree and significance of participation by Canadians in the target company. This assessment involves a high degree of discretion.

Yomiuri: What is the national security review?

Kitamura: With respect to security, a National Security Review regime has been established, under which a review is conducted by the Canadian government separately from a net benefit review.

The final decision-maker under the Investment Canada Act is an elected politician, and the acquirer has no substantive right to object, meaning that political factors strongly influence the acquisition review process.

The Japanese foreign exchange law does not have a mechanism like the Investment Canada Act that determines whether to approve an acquisition based on the presence or absence of benefits to Japan.

Regarding security-related reviews, foreign companies are required to file "prior notification" for direct investment in Japanese companies operating in designated industries (such as those related to security).

Regulations related to food security designate fertilizer as a "core industry" requiring security considerations in the food-related field, but there are no industry designations based on food security itself.

Insufficiencies in foreign exchange law

Yomiuri: What are the differences between Japan's foreign exchange law and other countries' laws?

Kitamura: Under the current framework of the foreign exchange law, despite holding as much as approximately 10% of the domestic food market share, Seven & i is not designated as a core industry protected under the pretext of food security, but merely has part of its operations designated as a core industry.

In Canada, acquisitions can be prohibited not only on the grounds of food security but also based on (potentially highly political) judgments regarding whether foreign investment would benefit Canada. Japan's foreign exchange law lacks provisions equivalent to this.

This acquisition proposal not only caused significant economic shock but also highlighted serious issues in Japan's legal system. Taking this as an opportunity, it is necessary to review Japan's Foreign Exchange and Foreign Trade Law from the perspective of national security, in response to the increasingly severe international situation, while also referring to the legislation and systems in place in the United States, Europe and other areas.

Shigeru Kitamura graduated from the Faculty of Law at the University of Tokyo and joined the National Police Agency in 1980. He has served as director of Cabinet Intelligence and secretary general of the National Security Secretariat, where he established the economic division and promoted economic security policies. He has also authored several books, including "Keizai Anzen Hosho: Igyo no Taikoku Chugoku wo Chokushi seyo" (Economic security: face the reality of China, an atypical global power) published by Chuokoron-shinsha Inc.

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This article is from The Yomiuri Shimbun. Dow Jones Newswires and The Wall Street Journal were not involved in the creation of this content.

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May 18, 2025 22:49 ET (02:49 GMT)

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