Abstract: Against the background of rising security concerns over foreign direct investment (FDI), several major economies including the European Union (EU) have begun to tighten FDI screening processes. At the same time, such close scrutiny of FDIs has to be compatible with their investment liberalisation commitments under the General Agreement on Trade in Services (GATS) and international investment agreements (IIAs). Taking Japan as a case study, this article examines the efforts made to avoid confl icts between FDI screening and investment liberalisation obligations. In this regard, security exception clauses in the GATS and IIAs are of particular relevance. This article discusses the controversies over the justiciability and the standard of review of the so-called self-judging security exception clauses, and proposes incorporating a precautionary approach in interpretation of these clauses. This article argues that the current legal framework lacks a cooperation mechanism to address international security issues, as a result of which states rely heavily on security exception clauses for the protection of “national” security interests against security threats, generating the risk that they may use this clause to pursue protectionist goals. This warrants the establishment of a global cooperation mechanism to deal with the tension between economic globalisation and security issues.
Keywords: Foreign direct investment screening; international investment agreements; security exception clauses; GATS Article XIV bis; self-judging wording; Foreign Exchange and Foreign Trade Act of Japan.
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