Economic Partnership Agreements (EPAs) and investment treaties are very useful for Japanese companies expanding overseas, regardless of the size of the company. This is because, under these agreements, the regulations stipulated in the laws, and of the partner country, are especially relaxed for Japanese companies, a framework is established to resolve local business obstacles that are not based on laws and regulations with the Japanese government, and a special framework is established to resolve disputes with the governments of the partner country. EPAs with investment treaties and investment provisions are called investment-related agreements.

Yusuke Hatakeyama, Mori Hamada & Matsumoto
Yusuke Hatakeyama
Mori Hamada & Matsumoto
Tel: +81 50 5329 8228

Nevertheless, many companies are missing out on opportunities because they do not know how to use them. For example, according to a 2020 survey by the Japan External Trade Organisation (JETRO), a government organisation promoting mutual trade and investment, 35.5% of 966 Japanese companies with overseas bases are completely unaware of these investment-related agreements.

Japan has been actively concluding EPAs and investment treaties in recent years, and as of the end of March 2021, 19 EPAs have come into effect in 48 countries. In particular, it is worth noting that, since 2018, agreements to create a huge economic zone, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Japan-EU EPA, and the Japan-US Trade Agreement have all come into effect one after another.

In November 2020, the Regional Comprehensive Economic Partnership (RCEP) – a mega EPA including Japan, China, South Korea, 10 ASEAN countries, Australia and New Zealand – which covers areas where many Japanese companies are expanding, has been signed and is expected to come into effect as soon as possible. In addition, Japan’s 46 investment-related agreements in force cover 75 countries and regions.

As shown in chart 1, the EPA network is multi-layered, and some countries have separate investment treaties. For example, Japan has bilateral EPAs with Singapore and Vietnam, the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) with 10 ASEAN members, the CPTPP with 10 signatories, and if the RCEP comes into force, the agreement will also be an option. Companies are free to decide which agreement to use, so it is better to select the agreement that is most advantageous to the company, after a thorough consideration.

Below are the EPAs and investment treaties at each stage of corporate activity, such as deregulation of foreign capital, protection and liberalisation of investment, improvement of the business environment, and dispute resolutions in the partner countries, with some specific examples of strategic utilisation.

status of economic partnership agreements

Foreign capital relaxation

The majority of EPAs and investment treaties have partially relaxed restrictions on foreign capital in the countries they operate. For example, if the foreign capital regulation of the partner country sets the upper limit of the investment ratio for companies in a specific industry to 49%, Japanese companies may be allowed to invest 51% or more.

Investment protection and liberalisation

When faced with issues related to post-investment treatment in the partner country, such us expropriation of investment property, sudden and unreasonable regulatory changes, unreasonable delay in obtaining licences, obligatory technology transfer, cancellation of investment conditions promised by the local government, etc., solving the problem based on investment-related agreements is a powerful option.

Chart 2 shows examples of the main provisions of investment-related agreements and the issues that can be addressed. The agreement called the liberalisation stipulates not only protection after the investment is established, but also national treatment and most-favoured nation treatment at the entry stage.

Improving the business environment

Of the 19 EPAs that have come into effect in Japan, 14 of them – excluding the Japan-Singapore EPA, the AJCEP Agreement, the Japan-EU EPA, the Japan-US Trade Agreement, and the Japan-UK EPA – have provisions for improving the business environment. The business environment here broadly means the environment in which a domestic company in the partner country conducts business, and is not necessarily related to the domestic laws and regulations of the partner country, and the contents of the agreement in the EPA. However, some specific area can be a target of improvement if it is related to business activities. For example, improvements can be made to prevent crime against Japanese nationals, speeding up licensing procedures, simplifying customs procedures, and eliminating tax problems.

With this provision, a permanent liaison office is set up in the government of the partner country, so that official channels for inquiries and application submissions are always secured. Based on this framework, the local Japanese embassy will carry out the application and consultation with the government of the partner country. It is more likely that the partner country will deal more seriously than when a Japanese company negotiates with the government agencies alone.

If the problem is not resolved at the embassy level, it can be treated as an intergovernmental consultation at an occasional meeting of the committee on improving the business environment. The committee is composed of government officials from both countries, but since the participation of parties with direct interests is also permitted, it is possible for a company to consult directly with the government of the partner country, together with a representative of the government of Japan.

Although the provision for improving the business environment may not be well known, it is desirable to understand as one of the softer and more realistic countermeasures than investment arbitration. Specifically, investment arbitration takes three to four years on average to settle, and costs tens of millions to hundreds of millions of Japanese yen. In addition, even if compensation is obtained from the partner country based on investment arbitration, it may not be possible to eliminate the concern that the Japanese business will continue to be treated unfair.

Since this provision is consultation-based, there is a restriction that it cannot be forcibly stopped. However, since it is not a measure for trials and arbitrations, there is no need to make a claim, or prove to the judge or arbitrator regarding the complaint, and it is sufficient to make an application to the extent that the authorities of the partner country can understand the problem and recognise the need to take remedial measures, so it is worth using before filing an investment arbitration.

Examples of investment-related issues

Dispute resolution

In many investment-related agreements, when a dispute concerning investment arises between an investor and the host country, the investor may compel it to be referred to investor-state dispute settlement (ISDS) in accordance with the arbitration rules of the International Centre for Settlement of Investment Disputes (ICSID) and the UN Commission on International Trade Law (UNCITRAL).

As a result, the investor can file investment arbitration without the approval of the host country, if the breach of obligations is not resolved. In particular, there may be concerns on whether a fair judgment can be obtained in the court proceedings in the host country for a Japanese company against the government, so there is a great merit in being able to resolve a dispute through fair arbitration proceedings. Unlike the framework of improving the business environment, it is necessary to assert and prove a specific breach of obligation by the partner country. If monetary compensation may arise, it is important to consider investment arbitration.

ISDS is not adopted by the Japan-Australia EPA, the Japan-EU EPA, and the Japan-UK EPA. Although the CPTPP can use ISDS, there may be some restrictions excluded, such as investment treaties and permits. Therefore, it is necessary to consider arbitration to settle an investment dispute in advance.


There are many ways for Japanese companies expanding overseas to take advantage of EPAs and investment treaties. Relying only on local laws of the partner country may be disadvantageous, especially in a fiercely competitive environment. Therefore, it is advisable to obtain an accurate understanding of these agreements, and always consider whether there are any aspects that can be utilised in specific business activities.

(All views expressed in this article are the author’s personal views and not necessarily those of Mori Hamada & Matsumoto. The author does not purport to speak or express any opinion for or on behalf of the firm)


Yusuke Hatakeyama
Tel: +81 50 5329 8228
Mori Hamada & Matsumoto
16th Floor, Marunouchi Park Building
2-6-1 Marunouchi, Chiyoda-ku
Tokyo 100 8222, Japan