Japan and South Korea are likely to agree on the outline of a bilateral investment accord by the end of this year and put it into force in summer, Japanese trade officials said.
The two countries are expected to hold a working-level meeting as early as next week in Tokyo to map out the pact, they said Thursday.
It will be the second investment pact Japan has concluded with a member of the Organization for Economic Cooperation and Development, the Paris-based club of rich nations.
The first was with Turkey.
The pact is aimed at protecting and promoting direct investment by companies from both countries that are looking to, say, set up local subsidiaries or carry out cross-border acquisitions, the officials said.
Tokyo aims to have the pact include provisions for settling frequent labor disputes, which discourage Japanese investment in South Korea, and for averting the negative effects of the differing municipal legal systems.
Seoul proposed an investment treaty in 1999, deciding that a pact was necessary to revive an economy hard-hit by the 1997-1998 Asian financial and economic crises.
It is also expected to help improve general bilateral relations, which soured earlier this year over disputes involving, among other issues, controversial junior high school history textbooks. approved by the Japanese government that critics say gloss over the nation's wartime atrocities.
In September 2000 visiting South Korean President Kim Dae Jung and then Japanese Prime Minister Yoshiro Mori agreed to begin working-level talks on the pact.