Investment Treaty Practice of China, Japan and Korea

1. Investment Treaty Practice of China, Japan and Korea Arbitration Academy 2012: Class 1 (July2, 2012) Professor Hi-Taek Shin Seoul National University School of Law [work in progress: not to be quoted without permission]

2. Notes • The powerpoint files are provided to students of Arbitration Academy 2012. • As these files are work under progress, no quotation is permitted without the author’s written permission. • In preparing the lecture, the author draws upon the expertise and previous studies by G. Wang, W. Shan and N. Gallagher (on Chinese practice), and S. Hamamoto and L. Nottage (on Japanese practice). However, all mistakes, if any, are the author’s own. • The author recommends that students review the most recent data contained in World Investment Report 2012 released on July 5, 2012

3. China, Japan and Korea in the World Economy

4. GDP: 1,116 billions(USD) Population: 50 millions Tokyo   Beijing  Seoul GDP: 5,869 billions(USD) Population: 127 millions GDP: 7,298 billions(USD) Population: 1348millions Source: IMF Base year: 2011

5. List of countries by GDP(Current, USD) Source: IMF Base year: 2011

6. FDI Inflows into China, Japan, Korea and other major countries Source: UNCTAD

7. FDI Outflows from China, Japan, Korea and other major countries Source: UNCTAD

8. Number of BITs Source: UNCTAD, MOFAT, METI, MOFCOM

9. China, Japan and Korea inGlobal Network of International Investment Agreements Source: UNCTAD, MOFAT, METI, MOFCOM

10. Recent FDI Flows and Stocks of China (USD millions) Source: UNCTAD

11. China: from Capital-importer to both Capital-importer and Capital-exporter

12. In the late 1970s: China first adopted the ‘open-door’ policy • Attracting foreign direct investment (‘FDI’): one of the top policy priorities in the open-door policy. • Legislated special foreign investment laws to promote and control inflow of FDI into China. • The first BIT: with Sweden in 1982. • The counter-parties of earlier BITs included Western capital-exporting States (U.K., Italy) and Japan • The investment policy orientation of Chinese BITs: promote inward foreign investment • Very cautious in offering the level of protections to foreign investors: • No national treatment commitment • Only disputes concerning the amount of compensation for expropriation allowed for investor State arbitration.

13. In 1998: a ‘Going Abroad’ strategy focusing on investing abroad • Amore liberal BIT regime since 1998, after China adopted a ‘going abroad’ policy. • Reflecting China’s increasing overseas investment, the new BIT policy is set for the promotion and protection of both inward and outward investments. • Chinese Model BIT • First Model BIT used in 1980s • Second Version adopted in early 1990s • Current Version implemented since late 1990s • New generation of China’s BIT offers • enhanced protection standard on expropriation and national treatment • All investor-State disputes to be referred to arbitration

14. China’s FTAs with Investment chapter Source: MOFCOM

15. RecentFDI Flows and Stocks of Japan (USD millions) Source: UNCTAD

16. Japan: Traditional Capital-exporter

17. Japan starts to pursue protection of investment as a capital-exporter after 2002 • Prior to 2002, rather passive in concluding BITs: • Between 1977 (Egypt) and 2001 (Mongolia), only nine BITs. • No model BIT • In 2002, policy shift in international investment treaty practice • concluded its first FTA (with Singapore, including an investment chapter) and the pro-investor BIT containing liberalization commitment (with Korea). • Since 2002, seven ‘new-generation’ BITs and thirteen FTAs with investment chapters. • Japanese BITs seek market liberalization in addition to protection of investment

18. Japan’s FTAs with Investment chapter Source: METI

19. Recent FDI Flows and Stocks of Korea (USD millions) Source: UNCTAD

20. Korea: converted to a net capital-exporter, but selectively maintains a capital-importer perspective

21. Until the mid-1990s: a net capital-importing country • From 1964 to early 1980s: BITs with major European capital-exporting countries. • BITs largely conformed with the standard models of the respective European counterparty in an effort to promote private investment • Since late 1970s, Korea started concluding BITs with other developing countries (since late 1980s with transition economies).

22. After mid-1990s: a net capital exporter • From the 1990s, Korea’s BIT counterparties: diverse countries in different stages of economic development. • Model BIT developed in 2001 • Since 2003, Korea started conclusion of FTAs (first with Chile) which include comprehensive investment chapters. • Korea has FTAs with the U.S.A. and EU. • FTA negotiation with China has officially started. • Talks on tri-party FTA among China, Japan and Korea

23. Korea’s FTAs with Investment chapter Source: MOFAT

24. Tri-lateral Investment Agreement • BITs in place by and between China, Japan and Korea: • China-Japan (1988) • China-Korea (1992, 2007) • Japan-Korea (2002) • Tri-lateral Investment Agreement by and among China, Japan and Korea signed on May 13, 2012 • in the process of domestic ratification process of each state.

25. China, Japan and Korea:Common FTAPartner Countries

26. Objective (1) BIT

27. Objective (2) FTA Investment Chapter FTA Investment Chapter