By Eurasia Business News – February 27, 2021

Japan and Georgia signed a bilateral investment treaty on 29 January 2021. The agreement provides for strong protections for investors from both countries.

According to the World Bank, Georgia attracted USD 1.268 billion in foreign direct investments in 2019, after USD 1.265 billion in 2018. Picture : View on the castle complex of Ananuri, along the turquoise waters of the Aragvi River in Georgia. Source : Pixabay

Georgia and Japan signed an agreement on liberalization, support and protection of investments on 29 January 2021. The document was signed in Tbilisi by the Georgian Economy Minister Natela Turnava and the Japanese Ambassador to Georgia Imamura Akira.

Negotiations on the agreement between the countries began in 2017. 

The bilateral investment treaty provides for the introduction of mechanisms for legal protection of investments in both countries, which should facilitate the movement of private capital between Georgia and Japan and stimulate business initiative in sustainable investments.

The treaty provides for National Treatment (Article 2) regarding the investments, meaning that Each Contracting Party shall in its Territory accord to investors of the other Contracting Party and to their investments treatment no less favourable than the treatment it accords in like circumstances to its own investors and to their investments with respect to investment activities. This key principle is enshrined in every treaty and convention for the promotion and protection of investments.

Georgia and Japan have included in the treaty the Most-Favoured-Nation Treatment (Article 3), the fair and equitable treatment and full protection and security in accordance with customary international law (Article 4), the Protection from expropriation and nationalisation (Article 11), a prohibition of performance requirements (Article 6)

In addition, the treaty has provisions on measures against corruption (Article 9) and protection for free transfers of capital, profits, fees and dividends related to the investments (Article 14).

In case of dispute between a Contracting Party and the investor of the other Contracting Party, the treaty provides for a dispute settlement mechanism.

Indeed, the investor and the host State should initially seek to resolve the dispute through consultation and negotiation, which may include the use of non-binding, third-party procedures. If this attempt does not resolve the dispute, the investor can submit his claim to the arbitration under the ICSID Convention, under the ICSID Additional Facility Rules, under the UNCITRAL Arbitration Rules or, if the disputing parties agree, under any other arbitration institution or arbitration rules (Article 22 of the BIT).

To enter into force the bilateral treaty signed on January 29 must be ratified by the competent authorities of Georgia and Japan. It shall remain in force for a period of 10 years after its entry into force and shall continue in force unless terminated by the decision of a Contracting Party.

“We are doing our best to attract as many Japanese investors as possible to various industries in the post-period period and create new jobs” commented Natela Turnava, the Georgian Economy Minister since April 2019.

The Minister also remembered that Japan is an important political and economic partner of Georgia. Over the past 10 years, the volume of Japanese investments in Georgia has exceeded USD 150 million.

“This does not reflect the real potential, which is much higher. There are also many technical assistance programs implemented with the support of the Japanese government” said Natela Turnava after the signature.

Natela Turnava pointed out that Japanese investments did not stop even during the pandemic. In the spring of 2020, TEPCO Renewable Power (TEPCO RP) acquired 31.4% of the shares of JSC Dariali Energy, the company operating the Dariali hydropower plant located in the Kazbegi municipality. With an overall installed capacity reaching 108 MW, the whole facility was commissioned in April 2017. Its annual energy generation amounts to 510 million kWh, which accounts for about 4% of Georgia’s annual electricity consumption.

Prior to the signature of the investment protection treaty, the Georgian Minister Natela Turnava discussed with the new Ambassador of Japan to Georgia Imamura Akira the issues of deepening bilateral trade and economic cooperation.

Particular attention was paid to such industries as hydropower, green hydrogen production, infrastructure, agriculture, transport, as well as the development of a transport corridor.

After the signature of this bilateral investment treaty, Ivane Machavariani, the Georgian Minister of Finance, signed with the Ambassador of Japan a new Tax Convention.

This new Convention wholly amends the existing Convention, which entered into force in 1986 between Japan and Georgia. This new agreement expands the extent of  tax reduction on investment income, introduces measures for prevention of abuse and assistance in the collection of tax claims, as well as reinforces the exchange of information concerning tax matters. While eliminating double taxation and preventing international tax evasion and tax avoidance, this new Tax Convention should promote further bilateral investments and economic exchanges between Japan and the former Soviet Republic.

Under this new Tax Convention, when an enterprise of one of the two countries has in the other country a permanent establishment (such as a branch) through which the company does business, only the profits attributable to this permanent establishment may be taxed in that other country.

Today, Georgia has about three dozen companies with the participation of Japanese capital. According to data for three quarters of 2020, investments from Japan in the Georgian economy amounted to USD 15.4 million.

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According to the World Bank, Georgia attracted USD 1.268 billion in foreign direct investments in 2019, after USD 1.265 billion in 2018. This former soviet republic now offers attractive conditions for business and has a dynamic economy. In 2020 the average wage was around 400 euros.

Georgia and Japan established diplomatic relations on August 3, 1992. Tokyo cooperates with Tbilisi in the development of its economy, energy, medicine, agriculture, transport sectors and infrastructure. Trade turnover between the two countries in 2020 amounted to USD 172.3 million.

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