Oman, Japan expected to ink investment agreement
Expected in the second quarter of this year, the agreement will boost bilateral trade by attracting more and more Japanese investments, says the ambassador
MUSCAT: Oman and Japan will witness a significant growth in bilateral trade and investment with the signing of an investment agreement between the two countries, which is expected in the second quarter of this year, said Japan’s ambassador to the Sultanate.
“The signing of the JapanOman 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.
He said the agreement sets rules that neither contracting par- ty 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.
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.
Double taxation
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,” the ambassador 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 stateof-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.
The Japanese ambassdor 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 ‘ecofriendly’ 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,” he added.
The ambassador 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 checkup scheme for diabetes and metabolic syndrome,” Hisaeda said.