Japan-Oman investment agreement expected in second quarter

MUSCAT: Japan-Oman robust economic relationship is set to leap to a new level with the signing of an investment agreement between the two countries, which is expected in the second quarter of this year, says Japan’s ambassador to the Sultanate.

“The signing of the Japan-Oman Investment Agreement is expected to boost bilateral trade by attracting increased Japanese investment as a result of minimised conditions for investment in Oman as well as setting clear rules for cases of deterioration in the investment environment,”ambassador George Hisaeda told ‘Times of Oman’ in an exclusive interview.

Investment protection

The ambassador believes that the already strong economic ties between Japan and Oman, which are built upon a solid foundation of a ‘trusted trade partnership’, will benefit from this agreement that focuses on protecting the investment and investors.

“The agreement ensures the investors in the contracting parties will not be treated less favourably than those in the other contracting party. Investors should also not be treated less favourably than those from non-contracting parties,” said Hisaeda.

Setting rules

He explained that the agreement sets rules that neither contracting party shall expropriate or nationalise investments in its area of investors of the other contracting party except for a public purpose.

“This would apply to taxation measures as well, to avoid the abuse of the right of taxation by the authorities concerned,” he said, adding thatthe agreement also sets rules of compensation, namely that the compensation should be paid without delay and shall include interest at a commercially reasonable rate.

Types of agreements

According to the ambassador, there are two types of bilateral investment agreements which Japan has with other countries.

“The first mainly focuses on protecting the investment and investors. The second is to protect the investment and investors and at the same time liberalise investment between each country. The Japan-Oman Investment Agreement will be similar to the former,” Hisaeda noted.

Japan’s agreements

In total, Japan has 21 investment agreements and 13 economic partnership agreements (EPA) in effect. In addition to these, five Investment agreements and one EPA have recently been signed, and are expected to come into effect soon. The Middle Eastern and African countries which presently have investment agreements with Japan in effect are Egypt, Iraq, Kuwait, Turkey and Mozambique. An investment agreement with Saudi Arabia has already been signed.

Tax agreement

The ambassador said that the Japan-Oman Investment Agreement will follow on from the signing of the Japan-Oman Tax Agreement, which entered into force on September 1, 2014. The tax agreement adjusts the taxation rights between Japan and Oman to avoid international double taxation arising from economic and human exchanges, added Hisaeda.

“Reflecting the strengthened economic relations between the two countries, and to promote mutual investment, this agreement clarifies the limit of withholding tax rates imposed by the source state on dividends, interest and royalties. The agreement is expected to further strengthen the economic relations and human exchanges between Japan and Oman, and contribute to the prevention of fiscal evasion,” he stated.

Key points

The ambassador explained that key points of the agreement include the clarification of taxable scope in the source country on business profit resulting from the business activities of enterprises, reduction of taxation on investment income in the source country to 5 per cent dividends (10 per cent shareholding requirement) and 10 per cent others, interest exemption for the government etc and 10 per cent others, and 10 per cent royalties.

The agreement also involves a framework for ensuring smooth dispute resolution on tax matters between the tax authorities of the two countries, and provisions to implement the exchange of information regarding tax matters between Japan and Oman’s tax authorities.

Current trade value

Asked about the value of annual trade between Japan and Oman, Hisaeda said that it stood at around $7.34 billion in 2014. “In 2014, imports from Oman to Japan were around $3.84 billion and exports from Japan to Oman were around $3.50 billion,” he added.

Commenting on the main imports and exports, the ambassador stated, “Japan is one of Oman’s largest importers of oil and natural gas, but we also import vegetables, aluminum, and fishery products, like cuttlefish or white fish fillet, from Oman.”

One Japanese trading company is involved in the export of Omani green beans to Japan, he said, adding, “In winter, 90 per cent of fresh green beans on our supermarket shelves are labelled ‘From Oman’.”

Automobile, auto parts

Hisaeda further noted that more than 90 per cent of Japan’s exports to Oman are automobile and auto parts, expressing delight at the fact that he sees so many off-road, four-wheel drive vehicles, such as Toyota, Nissan, Mitsubishi, Isuzu and Subaru in different parts of the Sultanate. He added that Japanese state-of-the-art, reliable machinery and electronic appliances are also in demand in Oman.

Hisaeda also explained how the value of annual trade between the two countries has changed compared to previous years.

According to him, exports from Japan to Oman were around $2.96 billion in 2012, $3.13 billion in 2013, and $3.50 billion in 2014. Imports from Oman to Japan were around $5.60 billion in 2012, $5.63billion in 2013 and $3.84 billion in 2014. He said that 90 per cent of imports from Oman to Japan are crude oil and LNG, and in 2014,the volume dropped by around 30 per cent.

“According to reports from Japanese research centers and think tanks, this drop is mainly due to the weak yen, which has pushed up the cost of imports,” he noted.

Eco-friendly initiatives

“In addition, the number of ‘eco-friendly’ vehicles in Japan, which require less gasoline,is on the rise. Japan is depending more on thermal power generation rather than nuclear power following the Great East Japan Earthquake in 2011. Thermal power plants use LNG for electricity generation, but according to a report, LNG imports for these did not increase in 2014 and remained almost at the same level as 2013,” the ambassador added.

Hisaeda says that there is huge potential for further cooperation between the two friendly countries.

Untapped potential

“The Japan-Oman economic relationship has been advanced in recent years with the diversification of Oman’s economy, presenting opportunities for Japanese companies to participate in a wider range of economic activities,” he said.

Infrastructure development is one of the areas where Oman and Japan can cooperate given the growth of this sector in Oman and Japan’s extensive experience in this area, he noted.

Japan’s major achievements in this field include an urban transportation system, which the country has itself developed from the north to the south of Japan, with a world-class reliable, safe and punctual operating system.

“Oman may experience similar growth issues that Japan did, such as environmental protection, energy conservation, and treatment for diseases related to modern lifestyle. As Japan struggled in the past to resolve these issues, and subsequently developed successful high technologies and systems, we can share our experiences in areas such as eco-friendly plant technology, for example waste heat reuse, and our medical check-up scheme for diabetes and metabolic syndrome,” Hisaeda said.

The ambassador added that Japan offers some of the safest and most reliable renewable technologies in the world as well as world-class technology in the medical sector and experience from the issues of an aging society and lifestyle-related diseases.

Healthcare

“The large youth demographic of Oman’s population will become the future geriatric generation, and to avoid a large future medical financial burden on Oman’s government, the Japanese preventive healthcare system concept can be helpful here too,” he stated.

Other sectors for future Japan-Oman cooperation are fisheries and agriculture, Hisaeda noted.

Asked about the prospects of Japan’s oil and gas imports from Oman if the sanctions on Iran are lifted in a nuclear agreement expected to be reached by June 30, the ambassador said that Oman will remain a ‘lifeline’ for Japan.

Lifeline for Japan

Hisaeda said, “Japan welcomes the fact that P5+1 and Iran reached agreement on the key parameters of a Joint Comprehensive Plan of Action (JCPOA) in Lausanne, and strongly hopes that the final solution regarding the nuclear issue will be reached by the end of June 2015. We understand that details about ‘how’ and ‘when’ the sanctions on Iran will be lifted have been discussed towards a final agreement on a Joint Comprehensive Plan of Action.”

“Whatever the outcome, Oman remains a lifeline for Japan. Our bilateral relations will continue to go from strength to strength. Japan relies on Oman to supply oil and LNG, which are indispensable for Japan’s sustainable economic growth,” said Japan’s ambassador to the Sultanate.