ISDS in the Japanese Diet

No, I’m not referring to the presence or otherwise of something like MSG (monosodium glutamate) in the daily food intake of the remarkably long-lived Japanese people! Rather, this brief posting will highlight a fascinating and insightful recent article by Kyoto University Professor Shotaro Hamamoto about treaty-based Investor-State Dispute Settlement (ISDS) as an additional option typically provided for foreign investors seeking to enforce substantive treaty commitments offered by host states, alongside inter-state arbitration. Professor Hamamoto is a world-renowned international law expert, and it was a great learning experience to collaborate with him on a project some years ago where we reverse-engineered both the substantive and procedural provisions of Japan’s investment treaties.
His recent article, for a JWIT special issue on “Dawn of an Asian Century in International Investment Law?”, is entitled: “Recent Anti-ISDS Discourse in the Japanese Diet: A Dressed Up But Glaring Hypocrisy”. The analysis is important and timely given the question of whether and how the expanded Transpacific Partnership (TPP) Agreement will be ratified and brought into force across the present 12 economies, including Japan, the US and Australia. One focus of public debate remains the TPP’s inclusion of ISDS-backed investment commitments (now outlined by the Australian government here, and earlier subjected to my preliminary analysis here), along with some broader doubts about the overall benefits of FTAs generally (as I discussed on a panel with economists and a journalist at a recent Lowy Institute seminar).

The online abstract for Professor Hamamoto’s recent article states: “As in many parts of the world, an [anti-ISDS] discourse has been propagated also in Japan. In the Japanese Diet (Japan’s parliament), ISDS is criticized as infringing State sovereignty; as being incompatible with the Japanese Constitution; as unduly restricting regulatory space and government procurement; as being biased in favor of the United States; and as being acceptable only in relation to developing States. These criticisms are difficult to sustain and in fact ineffective as investment treaties continue to be approved by the Diet by unanimity or by a large majority. An analysis of the rhetoric of these criticisms and of actual voting records suggest that investor-State arbitration itself is not an independent political issue in Japan, but used as a pretext to manifest an anti-American sentiment or to criticize the incumbent government.”
Professor Hamamoto goes on to highlight (at p933) how the Japanese Diet only began questioning whether ISDS should be included in Japan’s treaties in May 2011. Although this was in the context of the Japan-India free trade agreement, in 2010 the then Prime Minister Naoto Kan (leader of the Democratic Party of Japan or DPJ) had indicated that Japan would consider joining the TPP negotiations (which Japan did formally from 2013 under Prime Minister Abe, after the DPJ lost a general election in 2012).
Professor Hamamoto further notes (at p947) that on 16 May 2013, one DPJ (now Opposition) parliamentarian referred to Australia and the US omitting ISDS in their bilateral FTA signed in 2004, in arguing that Japan did not need this dispute resolution procedure when the counterparty was a developed country (p947). He also cites several other DPJ parliamentarians as referring over 2014 to Australia’s more thoroughgoing objection to treaty-based ISDS under the Gillard Government Trade Policy Statement (in force from April 2011 until June or at latest September 2013, which departed from Australia’s earlier treaty practice in refusing to include ISDS provisions even in treaties with developing countries). I also recall being interviewed in Sydney by NHK World Radio on 9 May 2013 and by TV Asahi on 21 May 2013, about the Trade Policy Statement and the first-ever ISDS claim brought against Australia, by an originally US-based tobacco company.
One DPJ parliamentarian, Mr Takashi Shinohara, added on 27 February 2014 that ISDS clauses were particularly risky when the US was involved, as in the TPP, because US investors are prone to bring arbitration claims (whereas Japanese investors show more restraint). As Prof Hamamoto further notes (at p948), Mr Shinohara repeated this allegation before the Diet on 29 October 2014.
This comment is intriguing because the bilateral FTA was substantially agreed on 8 July 2014, just before Australia signed the Korea FTA, which in fact had included ISDS – as part of the different policy of the Abbott Government (elected on 7 September 2013) of agreeing to such provisions again on a case-by-case assessment. Perhaps the Abbott Government still didn’t really want ISDS in the FTA with Japan because this might have complicated enactment of tariff reduction Bills through the Australian Senate (where the new Government lacked an absolute majority, like the Howard government did back in 2004 when it concluded the Australia-US FTA). Perhaps also the Japanese government wasn’t prepared to offer enough in return for including ISDS.
Subsequently, the Abbott Government did indeed face some difficulties in getting necessary legislation through the Senate for the FTAs with Korea and China, which also included ISDS. Yet Korea pushed strongly for ISDS in their FTA with Australia (and then one concluded with New Zealand), despite some Opposition parliamentarians themselves objecting to ISDS in the context of ratification of the Korea – US FTA and then the first-ever treaty claim brought against Korea by a US-linked investor. As Prof Hi-Taek Shin and Ms Liz Chung remark in their article’s abstract for the same JWIT special issue: “In the face of heightened public scrutiny, Korea began to critically review key features of its [investment treaties] and developed its own position on some important issues.”

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.