The
Investment Regime in ASEAN Countries
Dr.
Lawan Thanadsillapakul
Malaysia
There
are generally no restrictions on foreign participation in the manufacturing
sector. However, there are guidelines on foreign equity participation
in the manufacturing sector, which are governed by the level of exports
proposed by the applicant companies. In Malaysia (which limits ownership
depending on the proportion of production exported), foreign equity in
any manufacturing company is required to be licensed(74) under the Industrial Co-ordination Act 1975 (ICA) by the Ministry of International
Trade and Industry (MITI)(75). There may
be equity conditions annexed to a licence. It is difficult for a branch
of a foreign company to obtain a manufacturing licence, and therefore
a foreign company wishing to establish a manufacturing operation must
generally incorporate a subsidiary.
However,
MITI allows up to 100% foreign equity for a manufacturing company that
exports 80% or more of its products. Foreign investors may also hold up
to 100% of equity if the products do not compete with those manufactured
locally for the domestic market and at least 50% of the products are exported,
and if it invests RM 50 million or more in fixed assets, or implements
projects which have at least 50% value added. Also 100% foreign equity
may be allowed for companies producing high technology or priority products
for the domestic market. Proportions of 30%, 51% and 79% of foreign equity
may be permitted, depending on the level of technology involved and the
ratio of exports. The reason for these restrictions is to allow ethnic
Malaysians to participate proportionately in business. These policies
clearly show that Malaysia, like other ASEAN countries, has strongly employed
the export-push policy and encouraged the development of high technological
industries for up grading technology.
Generally,
there are no restricted sectors for foreign investment, except those that
produce supporting parts and components. These include plastic packaging
material; plastic compound/masterbatch; plastic injection moulded components
and parts for the electrical, electronics and telecommunications industry;
paper packaging products; metal fabrication; and foundry products. However,
these restricted sectors are open to foreign investment that complies
with the specific equity policies and the requirements imposed on the
projects granted manufacturing licences stipulated in ICA 1975.
In
addition, in certain industries where local expertise and capabilities
have developed to a satisfactory level, the government regulates the levels
of foreign equity ownership. This is because the government has the objective
to provide more opportunities for local manufacturers. This also shows
the investment policy of this country to balance economic interest of
domestic and foreign investors.
The
Philippines
The
Philippines, like other ASEAN countries, has limited ownership ratio of
foreign investors with the objective to encourage domestic investors to
take more part in business firms. The ownership restriction has been implemented
relevant to the negative list (discussed below) where certain areas of
investment require majority of local shareholder in the company. This
also aims to secure such fields of business to be operated by local investors
on the grounds of guarding national economic strength, and less dependence
on foreign investment especially in public consuming industries.
The
Foreign Investment Act 1991 has deregulated the ownership restriction
in companies catering to the domestic market, except for the areas of
activity contained in the negative list (APEC: 1998, RP-8). There is a
move to further reduce the coverage of the negative list through the elimination
of the specific laws that restrict foreign equity participation in the
covered activities (ASEAN Secretariat: 1998, 34).
In
the Philippines, the Constitution and other national laws impose minimum
Filipino ownership requirements in certain areas of investments. These
restrictions are embodied in the Foreign Investment Act, which provides
a negative list having two component lists: A and B. List A includes all
areas of investment in which foreign ownership is limited by mandate of
the Constitution and specific laws. Under the Constitution, the ownership
and management of the mass media is limited to citizens of the Philippines
or to corporations or associations wholly-owned and managed by such citizens.
Educational institutions, except those established by religious groups
and mission boards, are limited to Filipinos or to corporations or associations
at least 60% of whose capital is owned by Filipinos. The advertising industry
and pawnshops are limited to Filipinos, or corporations or associations
whose capital is at least 70% owned by Filipinos. Also the operation of
public utilities and financing companies are reserved for Filipinos for
at least 60% of the investment. Some sectors, such as retail trade business,
are totally reserved for Filipinos requiring 100% Filipino ownership.
List
B consists of more sensitive areas of activities and enterprises concerning
security that are completely closed to foreign investment. These include:
defence-related activities, such as the manufacture and distribution of
firearms and explosives; the manufacture and distribution of dangerous
drugs, all forms of gambling, night-clubs, bathhouses, massage parlours
and other like activities, because of risks they may pose to public health
and morals; small and medium sized domestic market enterprises with paid-up
equity capital of less than the equivalent of US$ 200,000, unless they
have paid-in equity capital of US$ 100,000 and (i) involve advanced technology
as determined by the department of Science and Technology or (ii) employ
at least 50 direct employees; and export enterprises which utilise raw
materials from depleting natural resources, and with paid-in equity capital
of less than the equivalent of US$ 500,000.
Considering
the areas of activities that are subject to the ownership restriction,
the Philippines is mainly concerned for security, public order, health,
and sensitive area of business, and does not employ this restriction as
an instrument to prevent foreign investors from entering the Philippines
economy. This rationale for ownership restriction is also applicable to
all ASEAN countries.
However,
the Ramos government has launched a new economic policy including:
(1) |
Liberalisation in many areas of economy (such as services sectors); |
(2) |
Deregulation of business and industry; |
(3) |
Privatisation
of most government owned and controlled corporations (such as power
and energy); |
(4) |
In
the long term, reduce dependence on the IMF and the World Bank for
the financing of the requirements for development.
(The Philippines BOI: 1998, economic policy) |
This
new economic policy of the Philippines is more liberalised and opens more
industries to foreign investors, especially it offers more opportunities
to foreign investors to invest in the areas that presently have been privatised.
This process of national liberalisation is consistent with the regional
liberalisation: open regionalism.
Singapore
In
Singapore, there is no restriction on foreign ownership of business, except
for national security reasons and in certain specific areas such as air
transport, public utilities, newspaper publishing and shipping. Singapore
has very few restrictions because it has been an "entrepot port"
free trade country for centuries, and it has developed into an open economy.
Singapore welcomes and encourages trade and investment into the country,
and opens almost all industrial sectors to foreign investors so that there
are only few restrictions, as mentioned above. There are presently no
plans to expand the list of restricted sectors, and the basic objective
of the Singapore government is to encourage free market policy. Also there
are no laws or policies stating performance requirements. The Singapore
government treats all contracts as commercial dealings (APEC: 1998, SIN-2).
Regarding
the restricted sectors, the Singaporean government has a monopoly in the
manufacture of arms and ammunition. There are also certain restrictions
on foreigners acquiring equity interests in locally incorporated banks.
The MAS has imposed a 40% ceiling on foreign ownership in local banks.
The supply of public utility services such as electricity, water and gas
is currently confined to the public sector, but public control is gradually
being relaxed. Telecommunications are already privatised, while power
supply has been separated from the supply of other utilities and is provided
through a corporatised vehicle that many see as being a prelude to privatisation
of power supply.
Since
Singapore has already liberalised its investment regulations and adopted
"Free Market Economy" it is complementary to the implementation
of the open regionalism, and Singapore is more ready to open its industries
to foreign investors, also to extend national treatment to foreign investor
under the AIA.
Thailand
In
Thailand, certain business activities are subject to the shareholding
requirements stipulated in the Alien Business Law. The company, which
production is mainly designed for domestic consumption or distribution,
Thai shareholding must equal not less than 51% of the registered capital(76).
But export-oriented projects with at least 50% production for export could
be majority owned by foreigners. If 80% or more of the output is exported,
foreigners can own 100% of the shares.
The
Alien Business Law (No. 281) of Thailand prohibits aliens from conducting
certain types of business. The scheme of this law is to divide all prohibited
business into three categories, A(77), B(78) and C(79). Categories A and B are prohibited
to Aliens, but for category C business aliens must obtain a permit. In
certain exceptional cases the Director-General of the Department of Commercial
Registration, Ministry of Commerce may allow an alien to conduct a business
that falls within Category B, should such business obtain privileges from
the BOI(80).
Considering
the case of Thailand, we can see the two main purposes of ownership restrictions.
Firstly, they are related to the export-push policy, by encouraging foreign
investors to invest in export-oriented industries so that they can fully-own
or have a majority control over the company. This also facilitates the
equilibrium of the balance of payments. The Thai government is concerned
about the excess importation of intermediate inputs and raw materials
from abroad by foreign investors, so that if the foreign owned company
intends to export a higher proportion of its product, this can be used
to offset the importation of inputs. Therefore, the Thai government allows
a high ratio of foreign equity in such a case. The second objective is,
like other ASEAN countries, to balance the economic interests of domestic
and foreign investors, to secure public order, health, and securing sensitive
business sector. Thai investment policy is actually influenced by "the
trade-oriented investment pattern" (discussed below). This investment
pattern is complementary to the open regionalism that relies on market
driven factors more than regulatory function.
Part
8
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(74) Companies
with shareholders' funds of less than RM 2.5 million or less than 75 employees
are exempt from the licensing requirements of ICA.
(75)
The National Development Policy of the Malaysian government has the objective
of ownership in the Malaysian economy, including share capital in any
Malaysian company, being at least 30% by Bumiputras (the indigenous people
of Malaysia), 40% by other Malaysians and 30% by foreigners. Foreign ownership
of the Malaysian economy is controlled by legal and non-legal or administrative
means, which is controlled by the Foreign Investment Committee (FIC),
through its guidelines. FIC guidelines are not law but they are enforced
administratively.
(76)
The required percentage of Thai interests in Thai-foreign joint ventures
in agriculture, livestock, fisheries, mining and services used to be 60%,
now it is reduced to 51% as other sectors produce for domestic consumption.
(77)
Category A includes: agriculture (1) rice farming, (2) salt farming except
rock salt; commerce (1) internal trade concerning local agriculture products,
(2) trade in real property; Services (1) accounting, (2) Law, (3) Architecture,
(4) Advertising, (5) Brokerage or agency, (6) Auction, (7) haircutting,
hair dressing and beauty treatment; other business (1) building construction.
(78)
Category B includes: agriculture (1) farming, (2) gardening (3) livestock
farming & silk warm raising (4) forestry (5) fishery; industry (1)
rice milling (2) manufacture of flour from rice & field crops, sugar,
beverage, ice, drug, cold storage, wood processing, manufacture of casting
of images of Buddha, wood carvings, lacquer ware, all type of matches,
lime, cement, ply wood, wood veneer, chip-board or hard board, garments
or shoes except for export, product from silk, cold storage, wood processing,
stone blasting or crushing, printing press operation, newspaper publication;
commerce (1) retailing excluding items in category C, (2) trade in ore
excluding items in category C, (3) sale of food and beverage excluding
items in category C, (4) trade in antique, heirlooms and fine art objects;
Services (1) tour agency, hotel business, business under the law on services-providing
establishment, photography, laundry, tailoring and dress-making; other
businesses(1) internal transportation by land, water or air.
(79)
Category C includes: commerce (1) wholesaling of all types of products
within the country except those specified in category A. (2) export of
all types of products (3) retailing of machines, engines and tools (4)
sale of food and beverage for the promotion of tourism; industry and handicrafts
(1) manufacture of animal feed (2) extraction of vegetable oil (3) manufacture
of embroidered and knitted products including weaving, dying and pattern
printing (4) manufacture of glass containers including light bulbs (5)
manufacture of crockery (6) manufacture of writing and printing paper
(7) rock salt mining (8) mining; services , all service business except
for those specified in category A. and category B and other construction
except as specified in category A.
(80)
Even though in theory an alien can ask for permission to engage in business
listed in Category C, in practice permission is only feasible after the
designated business activity obtains BOI privileges. |