Foreign Investment, Treaties, Arbitration and Corruption: Comparing Japan

Abstract

AbstractJapan emerged from the 1980s as a leading net exporter of foreign direct investment, with very little corruption. Since 2001, it has accelerated ratifications of standalone bilateral investment treaties as well as investment chapters in free trade agreements. Almost all allow foreign investors from the home state to directly initiate investor–state dispute settlement (ISDS) arbitration against host states to get relief from violations of substantive treaty commitments. Japan’s investment treaty practice on corruption and illegality is intriguing. First, from around 2007, its treaties have often urged host states to take measures against corruption. This should help Japan’s outbound investors. Second, Japan’s treaties have been less consistent in expressly limiting their protections to foreign investments made in accordance with host state laws. This can again benefit Japanese outbound investors as claimants, as the absence of a legality provision renders more difficult defences from host states, which typically have more corruption than in Japan. Japan may adopt more and clearer legality provisions if subjected to more inbound ISDS arbitration claims and/or if claims by Japanese outbound investors are mostly against well-governed host states with little scope for corruption. Yet both types of claims remain few. The shift may therefore come more from other counterparty states pushing for such legality provisions and Japan agreeing in its future treaties to demonstrate its overall commitment to combatting corruption, and to preserve the legitimacy of the ISDS arbitration system.