Open
Regionalism and Deeper Integration: The Implementation of ASEAN Investment
Area (AIA) and ASEAN Free Trade Area (AFTA)
Dr.
Lawan Thanadsillapakul
Part
12
Consider
from the models suggested by UNCTAD (discussed above), the AIA agreement
may be considered to be a hybrid model, as it binds ASEAN member countries
to grant mutual national treatment to ASEAN investors and then to extend
NT to non-ASEAN investors later, by the year 2010. Mutual national treatment
involves a greater commitment to full liberalisation among member states
aiming at attaining regional integration, in order to offera larger geographical
area within which globally competitive industries can be established.
Under mutual national treatment, the right of entry and establishment
are offered to investors located in member states that either possess
the nationality of such state and/or are resident for business purpose
in a member state. The aim is to establish a common regime for entry and
admission for investors from member states (UNCTAD, 1999: 17). ASEAN countries
also extend the combined NT/MFN treatment to ASEAN investors. This means
ASEAN countries commit to offer each other NT and MFN treatment, whichever
is more favourable to investors from any member country, at pre-entry
and post-entry stages of investment. The aim is to widen entry and establishment
rights as far as possible, to enable investors from other ASEAN countries
to obtain the same rights of access as the national or most-favoured third
country investor. Under AIA (Art. 8) "any preferential treatment
granted under any existing or future agreements or arrangements to which
a Member State is a party shall be extended on the Most-Favoured Nation
basis to all Member States". Therefore, any advantages accorded to
third parties, either under existing or future agreements will be extended
to all ASEAN countries. However, any ASEAN country can confer special
treatment or advantages to adjacent countries under growth triangles and
other sub-regional arrangements between member states(91) , which need not be extended to others under the MFN requirement.
Consequently, implementation of AIA based on mutual NT and combined NT/MFN
treatment is enhancing intra-ASEAN liberalisation or regional integration
while it encourages the inflow of foreign investment from outside the
region. Therefore, a combined model is implemented in AIA: NT/MFN treatment
is initially granted to ASEAN investors until the transitional period
elapses, then NT is granted to non-ASEAN investors. This reflects the
transitional approach in investment liberalisation of ASEAN, firstly prioritising
intra-regional investment liberalisation, and later closer integration
with the world.
ASEAN
Investor
Central
to this model is the definition of "ASEAN investor". The status
of ASEAN investor enables such an investor to be entitled to immediate
NT/MFN treatment. Under AIA Art.1, an ASEAN investor is defined as:
1) |
a national of a Member State; or |
2) |
any juridical person of a Member State, |
|
making
an investment in another Member State, the effective ASEAN equity
of which taken cumulatively with all other ASEAN equities fulfils
at least the minimum percentage required to meet the national equity
requirement and other equity requirements of domestic laws and published
national policies, if any, of the host country in respect of that
investment
. |
For
the purpose of this definition, equity of nationals or juridical persons
of any Member State shall be deemed to be the equity of nationals or
juridical persons of the host country:
"effective
ASEAN equity" in respect of an investment in an ASEAN Member
State means ultimate holding by nationals or juridical persons of
ASEAN Member States in that investment
.
"juridical person" means any legal entity duly constituted
or otherwise organised under the applicable law of a Member State,
.
"national" means a natural person having the citizenship
of a Member State in accordance with its applicable laws.
Therefore under AIA, a national or any juridical person of a member state
who invests in any ASEAN country is regarded as an ASEAN investor. Since
Art.1 refers to a juridical person constituted in a member country, it
is not limited to locally-owned entities. Thus, it does not exclude non-ASEAN
investors who have formed a company in a member country, and they may
be entitled to "ASEAN investor" status, provided it also meets
the conditions for "effective ASEAN equity" on a cumulative
basis. If Art.1 intended to exclude foreign-owned companies from the meaning
of "juridical person of a member state", it should be clearly
defined as "an ASEAN national juridical person", just like definitions
in national investment laws which make a distinction between foreign-owned
companies and national companies(92) . Accordingly, this definition of "ASEAN investor" enables any
company legally formed in any ASEAN country to be regarded as an ASEAN
investor and entitled to NT/MFN treatment under AIA. For instance, a foreign-owned
company duly constituted in Singapore may be entitled to the status of
ASEAN investor and hence to benefit from both NT and MFN treatment. Consequently,
the AIA provisions also indirectly encourage individual ASEAN countries
to lower their national equity requirement or to eliminate discrimination
between national and foreign investors at national level.
However,
it needs to be made clear here that national equity requirements are also
relevant to the existing national negative list, as a foreign-owned company
(classified by its foreign-owned equity) cannot access certain industries
that are closed to foreigners. Thus foreign-owned companies are still
subject to the negative lists of each ASEAN country that are still allowed
under AIA.
Nevertheless,
for an ASEAN juridical person to be entitled to NT as an "ASEAN investor"
it must also meet the requirements of "effective ASEAN equity".
This enables it to comply with the local equity requirements of any ASEAN
member country by counting the local equity participation in all other
ASEAN countries on a cumulative basis towards that local requirement.
The definition refers to "ultimate holdings", this means that
indirect holdings in related entities can be included in the cumulative
total(93) . For example,
if a hypothetical US company Computech has a Singapore subsidiary with
local Singapore investors owning 10%, it would need only an additional
40% of local shareholdings to meet the requirement in Malaysia for 50%
local equity; and then only further 1% to meet the Thai minimum of 51%.
Part
13
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(91)
Art. 8 (4) "Nothing in paragraph 1 shall prevent any Member State
from conferring special treatment or advantages to adjacent countries
under growth triangles and other sub-regional arrangements between Member
States".
(92)
For instance, Malaysian law defines a company as a foreign company or
non-resident company where 50% or more of its paid up capital is held
by non-residents; or it is branch of a company which is incorporated outside
Malaysia; or the majority shareholding is held by residents but the ultimate
right of control is held by non-residents. Under Thai Law, foreign company
means a juristic person of which half or more of the capital is owned
by aliens; a juristic person of which half or more of the shareholders,
partners or members are aliens, irrespective of the amount invested by
such aliens; a limited partnership or registered ordinary partnership
of which its managing partner or manager is an alien. Under Indonesian
law, investment where foreign investor is directly bears the risk of the
investment is foreign investment. Also under the Philippines law, if a
company or juristic person that foreign shareholders, partners that own
more than 41% equity will be regarded as a foreign entity. Only under
Singapore law is there no definition of foreign investor.
(93)
A technical issue could be made of the term "ultimate holding"
if the entities formed in ASEAN are all subsidiaries of a non-ASEAN entity,
so that local investors in one have no "ultimate holding" in
another. To avoid doubt, they could be structured as sub-subsidiaries. |