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
SUMMARY

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... (see full summary)

 
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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 Japans 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
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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 Governments efforts to improve investment climates are as follows:

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