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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