As a precursor to their free trade agreement (FTA) negotiations, which launched in March 2013, China, Japan, and Korea (CJK) signed a trilateral investment agreement in May 2012.1 The agreement aims to set the ground-work for greater regulatory transparency, a more predicable policy environment, and a liberalized investment regime in order to facilitate intraregional foreign direct investment (FDI) (CJK Joint Study Committee 2011). The pact was subsequently ratified and entered into force in May 2014.

Both Japan and Korea negotiated a basic bilateral investment treaty (BIT) with China more than 20 years ago. But the new trilateral agreement seeks to more closely align the investment standards of the three countries, including provisions on performance requirements, transparency, and intellectual property rights (IPR). These advancements are particularly important for Japan; the 1988 Japan-China BIT lacked such provisions, while the 1992 Korea-China BIT was amended in 2007 to include new obligations in these areas.

In the long gestation period leading up to the release of the CJK investment agreement, scant attention was given to the negotiations, given the shallow investment obligations of other intra-Asian pacts. Most Western observers assumed the agreement would be little more than a political statement of good intent. However, the CJK pact is at least a small leap forward and warrants a closer look because of its content and to assess whether it stands up as a potential alternative template for Asian countries, albeit a less rigorous one than the US model. In addition, the agreement may have important implications for the incremental liberalization that China is ready or willing to accept and thus for the direction of subsequent Chinese negotiations—most notably the Regional Comprehensive Economic Partnership (RCEP) between CJK and the Association of Southeast Asian Nations (ASEAN), Australia, New Zealand, and India and possibly the US-China BIT.