chapter  7
18 Pages

The Japan–Indonesia economic partnership agreement: an energy security perspective

BySITA SITARESMI

In the absence of a multi lateral investment agreement,1 more states are inclined to negotiate an investment agreement under a bi lat eral or a free trade agreement (FTA) framework. Inclusion of an investment agreement in a FTA will argu ably sup port the cre ation of a larger market (Hoekman and Newfarmer 2005: 949), which will offer an incentive for investment as it ensures greater demand for the investor’s goods and ser vices. Furthermore, the relaxation of trade bar riers lowers the cost of importing capital resources eventually making the cost of investment more eco nomical. Therefore, it is not surprising to find that states are increasingly including an Investment Chapter in their FTAs. In 2008, the OECD observed that 20 FTAs at the bi lat eral and regional levels incorp or ated an investment dis cip line in one of their FTA chapters (OECD 2008: 242). Under the FTA framework, it is common to find dual cover age of ser vices in both the Services and the Investment Chapters. Incorporation of a ser vices dis cip line into an Investment Chapter is largely a result of the shift in the composition of foreign direct investment (FDI) from manufacturing to ser­ vices (UNCTAD 2005: 5-8). With the exception of the Japan-Philippines Economic Partnership Agreement (EPA), most of Japan’s EPAs (the banner for Japan’s FTAs: see gen erally Hamamoto, Chapter 3 of this volume) allow dual cover age of ser vices in both the Services and the Investment Chapters. This chapter examines the roles of and relationship between the Invest­ ment Chapter and the Services Chapter in the Japan-Indonesia Economic Partnership Agreement (JIEPA),2 and inquires whether such the JIEPA structure grants ser vices with the bene fits of the treatment and pro ced ures accorded by the Investment Chapter of the JIEPA. This chapter argues that it is likely that this dual cover age allows stand ards of protections accorded by the Investment Chapter to be extended to services. This study also suggests that JIEPA was intended to secure trade and investment par ticu larly in the energy sectors. There are a number of under­ lying reasons for this hypo thesis. First, JIEPA is one among only a few EPAs that dedicate a specific chapter to energy. Second, Indonesia is one of the key

energy suppliers to Japan, which in turn is a major source of FDI in Indone­ sia. Third, the energy sectors (which involve ac tiv ities such as consultation, advice, construction, transportation and distribution) consist funda mentally of ser vices despite the UN International Standard Industrial Classification categorizing energy sectors as pri mary industry.3