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Alternative Approach for Improving Investor – State Relations

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1. Two Approaches (1)

Legal Approach(IIAs, other international Agreements) Soft Approach

Structure

・ Binding international legal obligation

・ Enforcement mechanism (ISDS, SSDS, Joint Committee etc.)　 - To provide the remedy　 - To facilitate compliance of its obligation

・ Communication among related Parties　 - Investor to Host Country　 - Home Country to Host Country - Investor and Home Country to Host County

- Ad hoc / regular ・　 continuous basis

Scope(Agenda)

Limited to within the obligation stipulated under the Agreement

Basically No limitation (Anything of interests or concerns)

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1. Two Approaches (2)

Legal Approach(IIAs, other international

Agreements)Soft Approach

Effectiveness(Leverage)

・ Strong implementation・ Binding decision・ Enforcing mechanism (by ICSID, NY convention)

- High cost- Solving only individual problems

・ Relying on the voluntelly actions of the host Country　 - Implementation risk - Non-attendance risk

- Cost saving - Solving common problems - Incorporate the opinions of small and medium companies (SMEs, “silent majorities”)

Under what conditions, will it work?

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2. Basic Assumption - How Soft Approach Works?

Investor and host Country’s perspective for ideal situation

- To contribute to or benefit from each other

- Long term business activities (relationship)

(No one wants to be got involved in dispute from the beginning)

Investor and host Country’s perspective for ideal situation

- To contribute to or benefit from each other

- Long term business activities (relationship)

(No one wants to be got involved in dispute from the beginning)

Creating Win-Win situation by building up trustful relationship (confidence building) between the Investors and host Country

Voluntary and Agreed Actions 　 - Improvement of business environment

- Solving problems

Preventing disputes!

Home Country’s

support

Regular and Continues Dialog between Investors and Host Country

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（ Reference ） Efforts in the APEC

IFAP outlines eight guiding principles :

Promote accessibility and transparency in the formulation and administration of　　 investment related policies; Enhance stability of investment environments, security of property and protection 　　　 of investments; Enhance predictability and consistency in investment related policies; Improve the efficiency and effectiveness of investment procedures; Build constructive stakeholder relationships; Utilize new technology to improve investment environments; Establish monitoring and review mechanisms for investment policies; and Enhance international cooperation.

IFAP outlines eight guiding principles :

Promote accessibility and transparency in the formulation and administration of　　 investment related policies; Enhance stability of investment environments, security of property and protection 　　　 of investments; Enhance predictability and consistency in investment related policies; Improve the efficiency and effectiveness of investment procedures; Build constructive stakeholder relationships; Utilize new technology to improve investment environments; Establish monitoring and review mechanisms for investment policies; and Enhance international cooperation.

The APEC Investment Facilitation Action Plan (IFAP) provides a working framework for a series of eight guiding principles that, if met, would constitute better practice in investment facilitation and improve the attractiveness of APEC member economies to FDI.

source: Centre for International Economics 2009 Measuring progress in implementing APEC’s IFAP

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3. Japanese Experience (1) Japanese IIAs: Focused on the Aspect of Home Country

Japanese Investment stock (2008) :

- FDI from Japan : 680 Billions of dollars

- FDI to Japan : 203 Billions of dollars Source: UNCTAD, World Investment Report 2009

IIAs concluded by Japan - 24

1 Egypt 　　1978/01 　 date　of　effect2 Sri Lanka 　　1982/08　　date　of　effect3 China 　　1989/03 date　of　effect4 Turkey 　　1993/03　　date　of　effect5 Hong Kong 　　1997/06　　date　of　effect6 Pakistan 　　2002/05 date　of　effect7 Bangladesh 　　1999/08　　date　of　effect8 Russia 　　2000/05　　date　of　effect9 Mongolia 　　2002/03 date　of　effect

10 Korea 2003/01　date　of　effect

11 Vietnam 　2004/12　date　of　effect

12 Cambodia 　2008/07　date　of　effect

13 Laos 　2008/08　date　of　effect

14 Uzbekistan 　2009/09　date　of　effect　

15 Peru 　2009/12　date　of　effect　

1 Singapore　　2002/11　date　of　

effect2 Mexico 　2005/4　date　of　effect3 Malaysia 　2006/7　date　of　effect

4 Philippine　　2008/12　date　of　

effect5 Chile 　2007/9　date　of　effect

6 Thailand　　2007/11　date　of　

effect7 Brunei 　2008/7　date　of　effect8 Indonesia 　2008/7　date　of　effect9　 Switzerland 2009/9　date　of　effect

EPAs (Investment Chapters) 　

BITs

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3. Japanese Experience (2) Rare Utilization of the ISDS

As a respondent: none

As a claimant : none under Japanese IIAs

(but only one case by third -Country IIA)

→Why? ・・・・ Unknown

- Relatively new history of negotiations of IIAs?

- Japanese business culture?

- Type of Japanese Investments?

Long term presence for manufacturing, retail business etc,

Large number of investors,

Size of each investment (consist of many SMEs)

- Corporate philosophy?

Hypothesis

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3. Japanese Experience (3) Basic Concept of Consultation Mechanism

The “Improvement of the Business Environment” Chapter (or Article) sets up a committee to allow industry and Governments to work together to improve the business environment under the EPA/BIT framework.

Invited industries can discuss directly with the high rank

officials of host Country with the help of home Country

Basically no limitation regarding the discussion agenda

(Improvement of the infrastructure, Simplification and facilitation of

administrative procedures, Improvement of public safety and protection

of IPRs, etc.)

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Liaison Office(MITI ）

Liaison Office(MOFA)

The Government of Malaysia（ MITI ）

The Government of Japan（ MOFA ）

reporting the findings

reporting the findings

recommendation, review

reporting the findings

Malaysian companies in JapanJapanese companies in Malaysia

complain, check

request of consultation

related ministries

answer

contact

related ministries

contact

answer

Sub-Committee on Improvement Business Environment●mission: addressing issues in relation to the improvement of the business

environment, reporting the findings and making recommendations to both countries, and reviewing the implementation of the recommendations, etc.

●organization: representatives of both governments, and representatives of the business sector as necessary

Joint Committee●function: reviewing and managing operation of the Agreement, supervising sub-

committees, and considering amendments, etc.●organization: representatives of both governments

designated Malaysian authorities(Embassy of Malaysia in Japan)

designated Japanese authorities(Embassy of Japan in Malaysia, cooperating with JETRO KL)

3. Japanese Experience (4) Structure of the Improvement of Business Environment mechanism

answer,

providing information and advice

※Provisions and schemes may vary with EAPs.

complain, check

request of consultation

complain, check

request of consultation

complain, check

request of consultation

answer,

providing information and advice

Supervising, coordination

report, consult reporting the findings

recommendation, review

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3. Japanese Experience (5) Case Examples and Achievements

Improvement of quality of electricity　　　 → → Budgeting for infrastructure improvement Improvement of shortage of gas supply　　　　→ → Starting consideration in the government Improvement of public safety （ truck hijack

prevention ）　　 → → Strengthening patrol and setting monitoring

cameras, etc. Anti-counterfeit

Information provision relating industrial standards Implementation of EPA (confirmation of ROO etc.)

Improvement of public safety　　　 →　→　 Damage decreased by opening a hotline

connecting with the related ministry. Anti-counterfeit. Standards and Conformity　　　　→→　 Opening a hotline connecting with IMPI Improvement of tourism　　　　→→　　 Introducing custom declaration cards for

travelers in Japanese Improvement of customs and taxation procedure　 　 →→　 Opening a hotline connecting with the central

customs, considering Japanese enterprises when amending customs procedure

Infrastructure improvement

Improvement of import procedure of agricultural products

Support for SME Entering service of nonstop flights*

Requests from Malaysia side 　 *

Requests from Japan side 　 *

Japan-Mexico　EPAThe Committee held in April 2005, May 2006 and May 2007

Japan-Malaysia　EPAThe Sub-Committee held in March and October 2007

GOJ (MOFA, METI, Embassy of Japan in Malaysia), JETRO KL Center, The Japanese Chamber of Commerce and Industry in Malaysia, JAMECA,Government of Malaysia (MITI), etc.

GOJ (MOFA, METI, Embassy of Japan in Mexico), JETRO Mexico Center, Nippon Keidanren (Japan-Mexico Economic Committee), The Japan Chamber of Commerce and Industry in Mexico, Japan Maquiladora Association,Government of Mexico (Ministry of Economy), etc.

Requests from Mexico side 　 *

Requests from Japan side 　 *

Main ParticipantsMain Participants

* Aero México started services between Narita and Mexico City in November 2006.

　　　 * Requests and results below are as of 2007.

Japan has held the Committee with many EPA partners continually.Japan has held the Committee with many EPA partners continually.

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3. Japanese Experience (6) Evaluation by Stakeholders

Host country …Generally welcome

Knowing investor/ investors’ priority

Gaining the understanding of investors on host Country’s efforts

Keeping good communications with investors

Attracting further (future) investments

Investors… Generally satisfied

Industries can raise issues collectively, when individual

companies may not be inclined to raise the issue on its own

Creating a good relationship with high rank officials

Keeping good communications with host Country

Planning further (future) investments

Host country …Generally welcome

Knowing investor/ investors’ priority

Gaining the understanding of investors on host Country’s efforts

Keeping good communications with investors

Attracting further (future) investments

Investors… Generally satisfied

Industries can raise issues collectively, when individual

companies may not be inclined to raise the issue on its own

Creating a good relationship with high rank officials

Keeping good communications with host Country

Planning further (future) investments

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4. Toward the Future (1)

Factors for Success of such Mechanism

Structure/Operation Involvement of high rank officials Power of the coordinating agency Choice of issues (Prioritizing common interests)

Other FactorsInfluence of investments (Existence of expectation of host Country) Attitude of investors (Wish to contribute to the economic development of host Country) Development assistance Good bilateral relationship

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4. Toward the Future (2) Proposal of “Stage by Stage Approach” “Stage by Stage Approach” and importance of effective coordination among each tool There are three stages of the investor-state relation and investment environment: - Peace time period: Voluntary improvement of the investment environment is needed - Early period: Efforts to prevent the disputes are needed - Disputed period: Preparedness to the dispute is needed Keep in mind, what should be done, stage by stage, by Investors and host Country Both of Investors and host Country should make efforts to improve investment environment to solve and prevent the investment disputes.

Peace time period : voluntary

improvement

Early period: prevention of the

disputes

Disputed period: preparedness for the

disputes

Government

Investor

Capacity Building (Bilateral, Multilateral, APEC)

Observance of the CSR, or Codes of Conduct on Multinational Corporation

Lobbying activities, cooperation between private sector groups

Communication by Embassy, bilaterally

Internal Checking by AuthoritiesArbitration (ISDS),

Mediation

Committee on Improvement of Business Environment