The
Investment Regime in ASEAN Countries
Dr.
Lawan Thanadsillapakul
Overview
Approval
procedures for FDI in ASEAN countries were fairly stringent until the
late 1980s. Eligibility criteria were used in many countries to direct
FDI inflows towards specific industries, such as sophisticated technological
industries, heavy industries and chemical industries. They also restricted
foreign competition in areas reserved for domestic investors. Government
authorities strongly preferred minority ownership by foreign investors
except in particular cases, for instance technology-intensive projects
and export-oriented industry.
In
conclusion, ASEAN countries targeted FDI inflows in specific industries
and encouraged specific forms of TNC engagement. At the end of the 1980s,
a major wave of liberalisation began because ASEAN countries needed inflows
of FDI to enhance their industrialisation in sophisticated technology
industries, reflecting the emergence of a significantly less restrictive
attitudes towards FDI in the region. Most importantly for foreign investors,
the principle of equal treatment of foreign and domestic investors began
to be widely accepted in the region, mainly through changes in policy
rather than the laws. Legal changes have been after 1998 under the Short-Term
Measures and AIA. Industries previously considered "sensitive"
have been gradually opened to FDI, and restrictions on profit remittances
have been relaxed. Ownership restrictions have also become more liberalised;
in particular, foreign majority ownership, extending up to 100% in certain
industries, is now possible in most ASEAN countries, although a number
of activities, especially in strategic industries, remain reserved for
domestic enterprises. Furthermore, approval procedures have become less
burdensome, with automatic approval now being used more widely. One-stop
service agencies have reduced bureaucratic hurdles. As a result, FDI policies
in ASEAN countries are beginning to converge around broadly similar international
standards. Nevertheless, the perception of the private sector is that
the FDI regimes of several ASEAN host countries need further improvement;
it appears to be difficult for foreign investors to acquire a controlling
share in ASEAN companies. Malaysia and Thailand are considered to be the
most restrictive in this respect. Foreign investors are constrained in
employing foreigners. Also investment in some ASEAN countries, e.g., Malaysia
and Indonesia, continues to be directed by government to a considerable
degree. Notably, regulatory obstacles were the most important factors
in discouraging some investments(65). However,
to the extent that regulatory deterrents to FDI exist, they are faced
by all foreign investors. They do not discriminate against any particular
country.
Ownership
Limits and Restricted Sectors
Ownership
limits and sectoral restrictions are the main control on FDI in ASEAN
countries. The main purpose of these restrictions is to protect the interests
of nationals from competition from foreign investors in those business
areas which have been regarded as key sectors for their national economies
or to protect "sensitive sectors", and also business concerning
national security and the public interest. In general, these controls
are intended to encourage their nationals to participate in their economy
and ensure a balance of controlling power in their economic activities.
Indonesia
In
the case of Indonesia, limitation of ownership is subject to a negative
list(66). The Investment Negative List is
valid for three years and subject to annual review. Now foreign investment
is subjected to the new government regulation No. 20 of 1994 concerning
share ownership in foreign capital investment enterprises, which allows
100% foreign equity ownership in all areas except those in negative list.
This clearly shows the more liberalised investment policy of Indonesia(67).
The Indonesian government clearly declared that
"To
maintain and speed up the momentum of national development, the deregulation
of policies and measures and simplification of investment procedures
should be continued and implemented in order to enhance and improve
the productivity and efficiency of economic sectors. Besides that, due
to the need of Indonesian economic development, the presence of foreign
direct investment should be encouraged to support economic development."
(APEC, 1998: INA-1).
Therefore,
foreign investors are encouraged to fully invest in this country except
those in the negative list, which is transparent and limited only to the
security and public interest. Accordingly, the Indonesian government expressed
that it should take any measures to create an attractive and conducive
investment climate and should implement many new measures with transparency
and consistency. (APEC: 1998: INA-1).
The
negative lists have been classified into five categories as follows:
(1) |
sectors that are closed to foreign investment(68); |
(2) |
sectors that are closed to foreign investment, except for new projects
that export at least 65% of the products(69); |
(3) |
sectors
that are closed to new investment, except for projects exporting
100% of their production(70); |
(4) |
sectors
that are totally closed to foreign investment(71) are contracting services in forest logging, casino/gambling, utilisation
and cultivation of sponges, marijuana and the like, veneer, penta
chlorophenaol, dichloro trichloro ethane (DDT), dieldrin, and chlordane; |
(5) |
sectors
that are reserved for small-scale industry in co-operation with
medium and large scale industry(72) are mainly in agricultural production such as dairy cow breeding,
shrimp larva culture, coral fish catching, salted and dried fish,
various flours from grain, brown sugar, soybean products, yarn-spinning,
fabric printing, weaving, knitting, lime and lime products, and
household clay ceramic goods. |
Moreover,
the Indonesian government has taken various specific actions to stimulate
a large increase of foreign investment in the last five year, namely the
continuity of deregulation and debureaucratisation efforts(73).
The new wave of investment liberalisation of Indonesia clearly facilitates
the process of open regionalism, especially it conforms to the AIA in
opening up industries to both ASEAN and non-ASEAN investors.
Part
7
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(65) These
views are expressed in the results of the survey of a number of firms
of the European Round Table (ERT), an association of large European TNCs,
carried out for a 1995 study: out of 25 factors discouraging investment,
which were either explicitly considered in the survey questionnaire or
identified by individual respondents.
(66)
The Negative Investment List is enacted by the Law No. 1 of 1967 concerning
Foreign Investment, and established by the Presidential Decree No. 54
of 1993 which replaces the Negative Investment list of 1992. It is now
replaced by the Government Regulation NO. 2/ 1994.
(67)
See ASEAN Secretariat (1998) Compendium of Investment Policies and
Measures in ASEAN Countries. Jakarta: ASEAN Secretariat.
(68)
Manufacturing of aircraft, motor vehicles (except for manufacturing at
least equal to the present degree of localisation implemented by existing
motor vehicle manufacturers), utility boilers, explosive materials and
the like, printing of valuable paper (postage stamps, duty stamps, bank
notes, passport) postcards, powder milk, palm oil, sawmills, plywood,
mangrove wood products, block board, and ethyl alcohol (Negative list
No.2/1994).
(69)
Manufacturing of cigarettes and medicine, including pharmaceutical formulation
and traditional herbal drugs (Negative list No.2/1994).
(70)
Manufacturing of artificial sweeteners, alcoholic beverages, fireworks,
and disposable gas lighters. Service sectors that are closed to foreign
investment are taxi/bus, local shipping, scheduled chartered flights,
aircraft and components workshops located in the airport, retail trade,
trade supporting services/advertising, private television broadcasting
and radio broadcasting services, and any industry which involves the use
of photographic equipment (Negative list No. 2/1994).
(71)
Contracting services in forest logging, casino/gambling, utilisation and
cultivation of sponges, marijuana and the like, veneer, penta chlorophenaol,
dichloro trichloro ethane (DDT), dieldrin, and chlordane (Negative list
No. 2/1994).
(72)
Dairy cow breeding, shrimp larva culture, coral fish catching, salted
and dried fish, various flours from grain, brown sugar, soybean products,
yarn-spinning, fabric printing, weaving, knitting, lime and lime products,
and household clay ceramic goods (Negative list No. 2/1994).
(73)
For example, liberalisation of the financial sector, relaxation of import
and export procedures (the October Package of 1998), harmonisation of
import tariff codes, reduction of import tariffs, and reduction of the
number of business fields that were closed for investment (the June Package
of 1991), the simplification of drawback system procedures, and intensification
of investment promotion activities especially for facilitating the industrial
relocation from NIEs and Japan (BKPM, Indonesia (1998) The New Investment
Policies Jakarta: BKPM). |