Open
Regionalism and Deeper Integration: The Implementation of ASEAN Investment
Area (AIA) and ASEAN Free Trade Area (AFTA)
Dr.
Lawan Thanadsillapakul
Part
11
Considered
from this perspective, the AIA applies a hybrid model combining model
4's "mutual national treatment" and model 5's "combined
NT/MFN treatment with negative lists". This is because AIA extend
NT to all investors, not only investor from member countries, (immediately
to ASEAN investor and to non-ASEAN by 2020) subject only to negative lists
(Art. 4 (b), 7). Moreover, all industries are opened for investment to
ASEAN investors by 2002 (initially by 2010), and to all investors by 2020
(Art.4 (c), 7). MFN is not, in principle, extended to non-ASEAN firms
(Art. 8 and 9) unless they meet the criterion of "ASEAN Investor"
(discussed below). Furthermore mutual NT is extended to ASEAN investors
[Art.7(2)]. I will analyse this legal aspect of AIA and its applicable
models in the following sections.
The
Opening up of Investment under AIA
In
the AIA for the first time ASEAN grants National Treatment to both ASEAN
investors and all other investors(81) . However, ASEAN investors will be granted both NT and MFN treatment (under
Arts. 7 and 8), while MFN treatment will not be extended to non-ASEAN
investors. Because even though ASEAN has implemented the "Open Regionalism",
AIA is still a regional integration agreement. Therefore, in principle,
it confines the preferences provided under AIA only to member countries,
as this can waive the MFN treatment on the ground of Art. XXIV of GATT.
Thus MFN will not be extended to non-ASEAN investors, except such investors
meet the criterion to be regarded as an "ASEAN Investor", as
such non-ASEAN investors can be entitled to all preferences provided under
AIA. And this is the main thrust of the "Open Regionalism" where
both regionalisation and generalised liberalisation are reinforced and
balanced. (In other words, if MFN treatment is generally and unconditionally
granted to non-ASEAN investors, AIA is not a regional integration arrangement
but it is just a general investment liberalisation, part of globalisation).
AIA
attempts a combination of model 4 and 5 (discussed above) by extending
NT and MFN to ASEAN investors first and then extending NT to non-ASEAN
investors by the year 2020. However, MFN is only extended to the ASEAN-based
investor (meeting the criterion of "ASEAN Investor") not to
non-ASEAN investor directly. Thus a transitional phase approach is used
from one model to another(82) . Moreover, the implementation of NT is subject to a 10-year differential
between ASEAN investors and non-ASEAN investors. Therefore, it is clear
that ASEAN investors are given priority. All industries [subject to the
temporary exclusion list (TEL) and the sensitive list (SL)] are to be
opened for investment to ASEAN investors immediately, and to non-ASEAN
investors, although not until the year 2010(83) . However, NT/MFN treatment and opening up all industries for investment
are also subject to the exceptions in the TEL and SL(84) , as well as other exceptions under Art. 13 (General Exceptions), Art.
14 (Emergency Safeguard Measures), and Art. 15 (Measures to Safeguard
the Balance of Payments).
The
removal of restrictions or control on foreign investment is done by extending
national treatment to the admission, establishment, acquisition, expansion,
management, operation, and disposition of investment (AIA Art. 7(1)(b)).
Previously, such regulations on screening and restricting entry and establishment
were extensive in the ASEAN investment regime. Under AIA, the ASEAN countries
committed themselves to "progressively reduce or eliminate investment
regulations and conditions, which may impede investment flows and the
operation of investment projects in ASEAN"(85) and not to create any new restrictions. Restrictions, which still remain,
under the TEL and SL, are also subject to the stand still and roll back
principles(86) . With the
commitment to the stand still and roll back principles, ASEAN countries
bind themselves not to create new restrictions, and to progressively eliminate
existing regulations that impede investment flows or restrict foreign
investment.
The
combined NT/MFN treatment model with a negative list of exceptions implemented
under AIA still allows ASEAN countries to maintain negative lists, which
may be provided under their existing legislation. Even though ASEAN countries
have deregulated and eliminated much of their investment controls, they
still reserve some crucial strategic industries, indigenous and cultural
industries, mostly for national security, health, public, cultural and
safety reasons. This approach recognises that certain areas may be beyond
the scope of liberalisation. However, ASEAN countries have to submit their
TEL and SL to the AIA Council within 6 months after the date of signing
the agreement and the TEL shall be reviewed every 2 years and progressively
phased out by the year 2003(87) . Therefore, most industries reserved on TEL will be opened by the year
2003 and the SL will be reviewed by 1st January 2003. The AIA Council
may decide a further review of the SL so that all negative lists might
be lifted.
Also
separate Short-Term Measures to Enhance the ASEAN Investment Climate(88) provided special privileges and measures for accelerating investment liberalisation
(discussed above). This includes a suspension of laws regulating equity
joint venture between foreign and local enterprises and 100% foreign equity
is now allowed(89) . Laws
restricting foreign shareholders in national companies are also deregulated(90) . However, since the 100% foreign equity and other special privileges
granted in the short-term measures are not set as permanent measures,
they are subject to change and may alter in the future or be extended
depending on later circumstances.
Part
12
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(81)
Art. 4 (b) of the Framework Agreement on the ASEAN Investment Area provided
that "national treatment is extended to ASEAN investors by 2010,
and to all investors by 2020, subject to the exceptions provided for under
this Agreement;". However, the ASEAN Leaders agreed to accelerate
the time frame: See Bold Measures. Section 6.1.3.3 above.
(82)
See UNCTAD (1999: 43).
(83)
Art. 4 (c) of The Framework Agreement on AIA provided that "all industries
are opened for investment to ASEAN investors by 2010 and to all investors
by 2020, subject to the exceptions provided for under this Agreement;"
The time frame for opening industries for investment to ASEAN investors
was accelerated from 2010 to 2003. See Bold Measures above.
(84)
Art. 7 (2) of the Framework Agreement on AIA provided that "Each
Member State shall submit a Temporary Exclusion List and a Sensitive List,
if any, within 6 months after the date of signing of this Agreement, of
any industries or measures affecting investments (referred to in paragraph
1 above) with regard to which it is unable to open up or to accord national
treatment to ASEAN investors. These lists shall form an annex to this
Agreement. In the event that a Member State, for justifiable reasons,
is unable to provide any list within the stipulated period, it may seek
an extension from the AIA Council".
(85)
Art. 3 of the Framework Agreement.
(86)
For instance, the TEL and SL that need to be gradually eliminated and
phased out are mostly the restricted industries previously closed to foreign
investors.
(87)
Initially the time frame for phasing out the TEL was set in the year 2010
but was later accelerated to the year 2003. Section 8 of the Statement
on Bold Measures.
See http://www.asean.or.id/economic/invest/sum_bold.htm.
(88)
Section 33 of the Hanoi Declaration provided that "As a step to enhance
ASEAN's investment and trade environment, a package of bold measures and
privileges will be granted to traders and investors. In this regard, we
ask our Ministers to commence implementation of the package of bold measures
starting from 1st January 1999". The Statement on Bold Measures,
which provides several measures accelerating trade and investment liberalization
further provides details of Short-Term Measures To Enhance ASEAN Investment
Climate. The Hanoi Declaration was done on 16th December 1998 at Hanoi,
Vietnam. On the same day, the Statement on Bold Measures and the Short-Term
Measures to Enhance ASEAN Investment Climate were adopted.
(89)
Section 6 (ii) Short Term Measures to Enhance ASEAN Investment Climate.
(90)
This can be seen from the privatization schemes implemented in ASEAN countries,
especially after the crisis, under the supervision and requirement of
IMF that come along with the IMF help package. For instance, Thailand
has to implement privatization in various national companies, such as
Petroleum company, electricity enterprises (Electricity Generation Authority
of Thailand: EGAT), and Telecommunication Authority of Thailand. Government
allows foreign investors to hold shares in those companies and also allows
foreign investors to make takeover bids for the collapsed financial firms
that had been taken over by the government after the crisis. |