The Australian Government has signed a bilateral investment treaty with its second largest trading partner Japan. Unlike the recently agreed Korea-Australia Free Trade Agreement, the Japan-Australia Economic Partnership Agreement does not include investor-state dispute settlement provisions.

On 7 July 2014, Prime Ministers Shinzo Abe and Tony Abbott announced the conclusion of negotiations for the Japan-Australia bilateral investment treaty (BIT): the Japan-Australia Economic Partnership Agreement (JAEPA). The JAEPA will provide valuable preferential access for Australia's exports and is by far the most liberalising trade agreement Japan, Australia's second largest trading partner, has ever concluded. The agreement was signed 8 July 2014.

JAEPA at a glance:

  • More than 97 per cent of Australia's exports to Japan will enter duty-free or will receive preferential access when JAEPA is fully-implemented;
  • JAEPA will slash prohibitive agricultural tariffs on a wide range of products to Australia's second-largest agricultural export market, including rapid tariff reductions for beef, Australia's largest agricultural export to Japan;
  • JAEPA eliminates tariffs on all of Australia's current minerals, energy and manufacturing exports; Under JAEPA, both governments will support work towards enhanced mutual recognition of professional qualifications;
  • JAEPA will promote Japanese investment in Australia by raising the screening threshold at which private Japanese investment in non-sensitive sectors is considered by the Foreign Investment Review Board; and
  • Australian innovators will enjoy levels of protection for their intellectual property in Japan broadly equivalent to protections provided in Australia.1

The JAEPA is the second trade agreement Australia has signed with a major North Asia trading partner in recent times. The Korea-Australia Free Trade Agreement (KAFTA) was signed 8 April 2014 and Australia is currently negotiating a free trade agreement (FTA) with China. Elsewhere in the world, Australia is currently engaged in a further six FTA negotiations - two bilateral FTA negotiations with India and Indonesia; and four plurilateral FTA negotiations: the Trans-Pacific Partnership Agreement (TPPA), the Gulf Cooperation Council, the Pacific Trade and Economic Agreement, and the Regional Comprehensive Economic Partnership Agreement.

Unlike the KAFTA, the JAEPA does not contain Investor State Dispute Settlement (ISDS) provisions. Such provisions allow foreign investors recourse to arbitration at the World Bank administered International Centre for Settlement of Investor Disputes (ICSID) where they believe actions taken by a government are in breach of commitments made under a BIT or FTA. A recent and notable example of a foreign investor relying on ISDS provisions is the arbitration brought by Phillip Morris against Australia. In that arbitration, Phillip Morris alleges that it has suffered damages as a result of Australia's adoption of cigarette plain packaging legislation, which Phillip Morris alleges is in breach of the Australia-Hong Kong BIT.

The absence of ISDS provisions in the JAEPA does not come as a surprise. The current Australian Liberal Government has adopted a case-by-case approach to the inclusion of ISDS provisions, whereas the previous Labour Government ruled out the inclusion of ISDS provisions in any future trade agreements reached.

It is expected that Australian investors are unlikely to be disadvantaged by the failure to include ISDS provisions, which are of most use when a foreign investor is unlikely be offered the protection of a jurisdiction's domestic legal system. Japan and Australia have an extensive history of strong trade and government relations. Additionally, Japan is recognised as mature democracy with an advanced domestic legal system.

It remains to be seen whether ISDS provisions will be included in the TPPA. The TPPA is a multi-lateral agreement proposed between a variety of nations, including Australia, the United States, Canada, Japan, Malaysia, Mexico, Peru, and Vietnam. Based on 2013 figures, TPPA countries account for approximately 37.5% of the world's GDP, with Australia's portion of trade representing AUD 209,160 million.1

Japan – the numbers

  • GDP: USD 4.902 trillion (2013)
  • GDP per capita: USD 38,491 (2013)
  • GDP growth: 1.5 per cent (2013)
  • Population: 127.3 million (2013)
  • Trade with Australia: AUD 70.8 billion (2013)1