Open
Regionalism and Deeper Integration: The Implementation of ASEAN Investment
Area (AIA) and ASEAN Free Trade Area (AFTA)
Dr.
Lawan Thanadsillapakul
Part
13
Therefore,
non-ASEAN investors can enjoy free mobility intra-ASEAN if they have "ASEAN
investor" status under the AIA, by virtue of the NT/MFN treatment
under AIA. Moreover, as discussed above, the short-term measures bind
ASEAN countries to allow 100% foreign equity holding in a company submitted
for approval from 1st January 1999 to 31st December 2000. This even further
accelerates the elimination of discrimination against foreign investors
and encourages them to invest in ASEAN immediately, within 1999-2000,
in order to be entitled to the special privileges and NT/MFN treatment
under AIA.
Regarding the implementation of NT with the 10-year differential between
ASEAN investor and non-ASEAN investors, in fact, the rationale behind
this time frame is not only specified as a grace period for fully implementing
AIA, but also to stimulate foreign investors to invest immediately in
any ASEAN country. If they do so now, they can be regarded as ASEAN investors
and immediately be entitled to the NT/MFN treatment. Once they invest
in any ASEAN country they are regarded as juristic persons of an ASEAN
country and are able to move freely intra-ASEAN, because ASEAN countries
have committed themselves to mutual NT, subject only to the TEL and SL.
So non-ASEAN investors, if they invest in an ASEAN country now, need not
wait till the year 2010 when NT will extend to all investors.
AIA
and Industrial Schemes
In
conjunction with the launch of the AIA, other industrial schemes (both
revised and new schemes) are to be implemented based on preferential treatment.
Prior to the launch of AIA, ASEAN had implemented some other industrial
programs such as the Revised Basic Agreement on ASEAN Industrial Joint
Ventures of 1987, the Memorandum of Understanding on the Brand-to-Brand
Complementation Scheme of 1988, and the ASEAN Industrial Co-operation
Scheme (AICO) of 1996. These programs are based on preferential regimes
extended among ASEAN members. For instance, the AICO scheme(94) is to encourage companies located and operating in different ASEAN countries
to co-operate with one another in the manufacture of approved AICO products.
A minimum of two companies in two different countries is required to form
an "AICO arrangement". The major privilege of AICO is that approved
AICO products will enjoy preferential tariff rates of 0-5% for all ASEAN
countries immediately upon approval of such an AICO arrangement. The immediate
application of the 0-5% preferential tariff rate will provide a head start
to AICO products compared to non-AICO products, since the general reduction
of tariff to the 0-5% range will not occur under the CEPT until 2003.
Other incentives include local content accreditation where applicable,
and other non-tariff incentives to be provided by the participating member
countries. The preferential tariff rates of 0-5% will also be applicable
to the importation of intermediate products and/or raw material inputs
for the manufacture of AICO Final Products and/or AICO Intermediate Products.
The scheme is open to any company that fulfils the criteria: incorporated
and operating in any ASEAN country; having a minimum 30% ASEAN national
equity(95) ; and undertaking
resource pooling, industrial complementation or industrial co-operation
activities.
These
ASEAN industrial programs implement the regional industrialisation program
model as they involve regimes for encouraging intra-regional investment
by the setting up of regional enterprises with capital from more than
one member country. They encourage cross-border investment by way of regionally
integrated enterprises and projects (UNCTAD, 1999: 16-17).
Thus,
ASEAN has concertedly liberalised trade and investment intra-ASEAN so
that all projects implemented are interactive and responsive to each other(96) . While the intra-ASEAN market has been growing(97) and becoming increasingly liberalised(98) , ASEAN has been liberalising investment that will further enhance trade
flows from within and from outside the region. With the interactive implementation
of AIA, AFTA, AICO, and the short-term measures, foreign investors have
been signalled that if they invest in ASEAN now they can be entitled to
all privileges granted under such agreements, even NT/MFN treatment and
the advance preferential tariff rate of 0-5% under AFTA. Foreign investors
responded immediately to the privileges offered by ASEAN. For instance,
in January 1999, Siemens AG established a regional trade and investment
centre in Thailand and increased its equity in Siemens (Thailand) from
49% to 74.5% of the company's equity(99) . Fujitsu also launched its biggest production base of hard disc drives
in Thailand in 1999(100) . Also US oil giant Caltex relocated its global operational headquarters
to Singapore in March 1999(101) . The Messer Group made its largest-ever single investment outside Germany,
in Singapore(102) . 3 COM
has opened its company's largest production base in Singapore with a US$
70 million investment(103) .
Part
14
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(94)
See explanation of AICO Scheme at the ASEAN website, http:/www.aseand.or.id.
(95)
However, this requirement is exempt during the implementation of short-term
measures between 1st January 1999 to 31st December 2000 for encouraging
foreign investment into the region. Therefore, 100% foreign equity holding
in a company established in any ASEAN country is allowed and entitled
to the preferences provided.
(96)
See Short term Measures in Annex 12, which ASEAN countries allow 100%
equity owned by non-ASEAN investor, and under AIA, "ASEAN investors"
are entitled to national treatment, and all industries are opened to them
(subject only to negative lists) have facilitated liberalised investment,
and these measures have also facilitated service trade through commercial
presence so that non-ASEAN service providers can establish themselves
in ASEAN countries and can freely mobile within the region. See section
3. of the Short Term Measures for individual ASEAN country liberalisation.
Also IMF rescued packages include privatisation scheme, open financial
sector, telecommunication, and other service sectors of ASEAN countries.
Also see Table 6 GATS-Plus Commitments of ASEAN Countries showing ASEAN
countries liberalised services extensively. AICO Schemes which reinforce
trade and investment liberalisation by providing 0-5% tariff rate to all
products produced under AICO Schemes. All these measures function in a
way that they are all complementary, and facilitate both trade and investment
lberalisation. Moreover, as I pointed out the four main areas that ASEAN
countries generally restrict FDI: entry restriction; equity limitation;
performance requirement; and investment incentive. Now ASEAN countries
have deregulated them, as mentioned above, allow 100% equity holding by
foreign investor, open industries that closeed to foreign investor, committed
to lift out performance requirement and coordinate among ASEAN members
in providing investment incentives.
See ASEAN Secretariat (1998a) Compendium of Investment Policies and
Measures in ASEAN Countries. Jakarta: The ASEAN Secretariat. Also
see ASEAN Secretariat (1998b) Handbook of Investment Agreements in
ASEAN. Jakarta: The ASEAN Secretariat.
(97)
ASEAN is now composed of 10 countries and has a total population of about
500 million, a total area of 4.5 million square kilometers, and a combined
gross national product of US$ 685 billion.
(98)
ASEAN responded to the crisis by pursuing financial and economic reforms
and boosting the region's competitive edge through accelerated implementation
of its economic liberalization policies and programs, such as the ASEAN
Free Trade Area, the ASEAN Investment Area and the ASEAN Industrial Co-operation
Scheme (AICO).
(99)
The centre would support the activities of Siemens AG joint ventures in
the whole region, particularly in the telecommunications, transport, medical
systems and power generation sectors. BOI Thailand Announcement, No. 18/2542
(O.10) 27th January 1999.
(100)
BOI Thailand announcement, No. 18/2542 (O.10) 27th January 1999.
(101)
Singapore Investment News, January 1999.
(102)
Messer Griesheim GmbH of Germany and Texaco Nederlands B.V., a subsidiary
of Texaco Inc of White Plains, NY, will build a US$ 200 million synthesis
gas production facility on Singapore Jurong Island. Singapore Investment
News, January 1999.
(103)
With the opening of the company's largest production facility in Singapore,
3Com becomes the first global networking company with a manufacturing
presence in Asia. Singapore Investment News, January 1999. |