FDI and Investment Arbitration in Japan

Abstract

INTRODUCTION Since 1964 when Japan joined the Organisation for Economic Cooperation and Development (OECD) and accepted Article VIII of the Articles of Agreement of the International Monetary Fund, it has liberalised its regulatory regime for foreign investment in line with the OECD Code of Liberalisation of Capital Movements. By the amendment of the Foreign Exchange and Foreign Trade Control Law (No. 228 of 1949; FEFTL) in 1979, inbound Foreign Direct Investment (FDI) was liberalised in principle. Furthermore, the amendments of FEFTL in 1991 and 1997 liberalised inbound as well as outbound FDI substantially. As a result, Japan's current domestic law regulating foreign investment is considered to be similar to that found in other developed countries. Outbound FDI has been significant since the 1970s whereas inbound FDI jumped from the late 1990s. Japan ranked fourth in the world for outbound flows with about USD 145 billion, which represented 12.7 percent of Japan's gross fixed capital formation. Japan's outbound stock in 2016 was about USD 1,400 billion (ranking tenth in the world, 28.4 percent of its gross domestic product). In contrast, although inbound FDI has been increasing, inbound FDI flows in 2016 were about USD 11 billion, which represented 1.0 percent of Japan's gross fixed capital formation, and inbound FDI stock in 2016 was about USD 187 billion (ranking 25th in the world, 3.8 percent of its gross domestic product). Thus, Japan is a capital-exporting country with less inbound investment. The Japanese Government has supported outbound FDI by Japanese firms in various ways, including by public institutions such as the Japan External Trade Organisation (JETRO), the Japan Bank for International Cooperation (JBIC) and the Nippon Export and Investment Insurance (NEXI). As regards international norms, Japan is a member of the World Trade Organization (WTO). However, Japan was hesitant to conclude the International Investment Agreement (IIA) until 2002, when Japan signed and ratified the Japan – Singapore Economic Partnership Agreement (EPA). Before this EPA, Japan concluded only nine bilateral investment treaties (BITs).