Legal Issues Regarding Foreign Investment and the Implementation of the Japan-Indonesia Economic Partnership Agreement

• Author: I.B.R. Supancana
• Position: Professor of International Law and Investment Law at Atmajaya University, Jakarta. LL.B./LL.M. (Indonesia), Ph.D.(Leiden).
• Pages: 131-152

Legal Issues Regarding

Foreign Investment and the

Implementation of the

Japan-Indonesia Economic

Partnership Agreement

I.B.R. Supancana



The entry into force of the Japan-Indonesia Economic Partnership Agreement on July

1, 2008, is highly expected to boost Japan



s investment in Indonesia due to the fact

that it is the most comprehensive bilateral agreement between the two countries. The

JIEPA covers most areas of economic cooperation, including: taxation, trade in

goods, trade in services, movement of natural persons, government procurement,

intellectual property, investment etc. Some potential legal issues are anticipated

during the implementation of the JIEPA due to some differences between the JIEPA

and the Indonesian legal system. This article focuses on issues related to foreign

investment related law, namely: instrument of ratification and its legal implications;

review mechanism; legal certainty; continuation of business activities; termination of

business activities; protection and guarantee of foreign investment such as minimum

standard of treatment; investment risks; and disputes settlement mechanism.

Keywords

JIEPA, Foreign Investment Law, Investment Risks, ICSID, Strategic

Investment Action Plan

KFBJM2)3122*  131

* Professor of International Law and Investment Law at Atmajaya University, Jakarta. LL.B./LL.M. (Indonesia),

Ph.D.(Leiden). He is Chairman/Founder of Center for Regulatory Research in Jakarta. The author may be contacted

at: supancana@yahoo.com /Address: Faculty of Law, Atmajaya Catholic University, Jenderal Sudirman 51, Jakarta,

12930, Indonesia.

1. Background

The signing of the historic Japan-Indonesia Economic Partnership Agreement (JIEPA)

marks a new era of economic cooperation between the two countires. JIEPA is the most

comprehensive bilateral agreement consisting of 15 chapters with 154 articles. It covers

most areas of economic cooperation including foreign investment. JIEPA is equipped

with Implementation Agreement and a Strategic Investment Action Plan.

1

With the ratification by the two countries, JIEPA effectively entered into force on July

1, 2008. Although there is a high expectation that JIEPA would boost Japans investment

in Indonesia, it is also concerned that there might be some constraints on its

implementation due to some differences between the JIEPA and Indonesian laws.

This article explores and analyzes foreign investment laws related to the

implementation of the JIEPA. The main topics of this paper are as follows:

a. Possible legal constraints on the implementation of JIEPA in relations with existing

national laws on investment and other relevant laws;

b. A comparative analysis between existing laws and practice on standards of

treatment to investors (both local and foreign), the JIEPA and in relation to

international Standard of Treatment;

c. Investment related dispute settlement mechanism in general and as it relates to

Foreign Direct Investment in Indonesia (FDI) in Indonesia, both through

adjudication and non adjudication process, including its law enforcement

mechanism;

d. Possible commercial and non-commercial risk on FDI in Indonesia; and

e. Some recommendations for implementing the JIEPA.

2. An Overview of Indonesian Investment Laws and JIEPA

s

Provisions and Implementing Agreement Related to Foreign

Investment

A. The Existing Conditions of Investment Laws and Policies in Indonesia

Despite that the Indonesian Government has been working very hard to improve the

investment climate through a series of policies and regulatory reforms,

2

little progress

132 

1

See

Implementing Agreement between the Government of the Republic of Indonesia and the Government of Japan

pursuant to the Article 13 of the Agreement between Republic of Indonesia and Japan the for an Economic

Partnership, Japan-Indonesia, Aug. 20, 2007,

available at

http://ditjenkpi.depdag.go.id/Website_tr/Preferential%20Tariff/

IJ-EPA/Implementing%20Agreement%20(ID).pdf (last visited on Apr. 4, 2011). The Implementing Agreement with

Annexes on Strategic Investment Plan covers: taxation, customs, labor, infrastructure and competitiveness. For a full

reference and elaboration,

see

the Gaikindo website,

available at

www.gaikindo.or.id (last visited on Apr. 4, 2011).

2Some policies and regulations reflecting the Governments efforts to improve investment climates are as follows: