IMPLEMENTATION OF NATIONAL TREATMENT PRINCIPLE IN INDONESIA-JAPAN ECONOMIC PARTNERSHIP AGREEMENT (IJ-EPA)

Abstract

Investment activity between countries has developed rapidly. The flow of Foreign Direct Investment (FDI) reaches a higher level per year. This activity is beneficial for both investors and host countries. Interdependence and competition then emerge as a result of investment growth. To cover the development of this investment, many multilateral and bilateral investment agreements were concluded, where one of the main legal sources was Trade-Related Investment (TRIMs). One of the most influential principles based on this Agreement, national treatment creates challenges to the application of the principles discussed. Both TRIMs which refer to the General Agreement on Tariffs and Trade (GATT) and International Investment Agreements (IIAs) and other Bilateral Investment Agreements (BIT) do not provide a clear standard measure of how to apply national treatment. This will cause an open interpretation of the national treatment clause. In this condition, Indonesia as a developing country must take steps carefully to protect national interests. Although FDI offers many benefits to Indonesia, protection of national interests must be taken into account in policy making. Because of the binding nature of national treatment to Indonesia, the state must provide treatment that is no less favourable to foreigners than citizens. Under these circumstances, the obligation to protect national interests and provide national treatment is contested. Until now, Indonesia has established investment relations with several countries and one of its biggest investors is Japan. For decades Indonesia and Japan have established economic relations through trade and investment. On August 20, 2007 the two countries agreed to form the Indonesia-Japan Economic Partnership Agreement (IJ-EPA) which became effective on July 1, 2008. With the aim of strengthening investment relations between the two countries and guaranteeing legal certainty. IJ-EPA is classified as a more comprehensive bilateral investment agreement.