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Articles
ASEAN Bilateral Investment Agreements
By: Dr. Lawan Thanadsillapakul (1)In this paper, I will focus on the ASEAN BITs by comparing terms and conditions of each ASEAN countries' BITs that very considerably. The variationis based mainly on the BIT model of some developed countries such as the UK model, the US model, the German Model, or Switzerland's, on which each ASEAN country has based its BIT. Moreover, each ASEAN country may also have its own bargaining position causing it to deviate from such models.
Therefore, it appears that one ASEAN country may adopt various models of BIT according to who is its contracting party and under what circumstancesthey entered into the BITs.
The most important characteristic of ASEAN BITs, like other general BITS, is that they are based on national laws of the contracting parties, especially on pre-entry and establishment control on FDI (discussed below). Thus most BITs do not affect national laws and leave this issue to the host country'sdiscretion. Even postentry national treatment allows the host country to impose non-discriminatory regulations and requirements to ensure the conformityof the FDI operation to the laws of the host country. These characteristics appear in all ASEAN BITs (see Table 4) Moreover, national treatment and MFN treatment are also subject to the national policy so that under certain circumstances foreign investors that are generally granted national treatment still are subject to some reservations. The purpose of BITs is to ensure the protection of foreign investment at least on the basis of an international standard.
Therefore, it is clear that ASEAN BITs do not override or affect their existing investment laws. This is in contrast with the US model BIT, which grantsnational treatment or MFN treatment whichever is more favourable at both pre-entry and post-entry stage to foreign investors which however no ASEAN country has yet accepted. Therefore, all ASEAN BITs remain their investment control model. Now I turn to discuss the ASEAN BITS, which are based on various models.The US BIT Model
Firms from European countries and the US. have long invested in ASEAN countries and ASEAN countries entered into bilateral investment
agreements with these capital-exporting countries after the 1960s, initially with a few countries such as Germany, the Netherlands and France.The US also concluded investment protection agreements with ASEAN countries in the 1960s but based mainly on the old model of the Treaty of Friendship, Commerce and Navigation (FCN). Recently ASEAN countries have also endeavoured to conclude BITS with other capital- exporting countries (see Table 1)It is notable that the US has not re-concluded any new BITs(2) with ASEAN countries, although the US already had agreements based on the olderFCN model protecting foreign investment with some of these countries. For instance, the US concluded a Treaty of Amity and Economic Relations with Thailand in 1966(3) and Vietnam in 1957(4) and also had a very old Treaty of Peace, Friendship, Commerce and Navigation with Brunei in 1850(5). With the Philippines, the US concluded an Agreement relating to entry of nationals of either country into the territories of the other for purposes of trade, investment, and related activities(6). The Philippines, is also a signatory to the Convention establishing the Multilateral Guarantee Agreement. Since this country adopts the generally accepted principles of international law as part of the law of the country, the generally accepted principles of international law on the protection of properties owned by the aliens are therefore considered part of the Philippines law. The rest(7) had concluded Economic Co-operation Agreements with the US. However, the US did conclude investment guarantee agreements with some of the ASEAN countries, but unlike BITs they were mainly focusing on the purpose of investment protection excluding the liberalisation of investment regulations. The US entered into an investment guarantee agreement with Indonesia(8), Malaysia(9), the Philippines(10), and Singapore(11). The areas covered by the agreements are:protection against unlawful nationalisation and expropriation; prompt; effective and adequate compensation in the event of nationalisation or expropriation,and of losses owing to such events as war or insurrection; free transfer of profits or capital and other fees; and settlement of disputes under the Convention on Settlement of Investment Disputes These various agreements were not unique, and particularly the old model of Treaties of Friendship, Commerce and Navigation and the Economic Co-operation Agreements broadly covered all economic issues, not just investment According to these agreements,investment protection accorded by ASEANcountries was mostly based on international law and also guaranteed fair and equitabletreatment. They also provide National Treatment or Most-Favoured-Nation Treatment in certain respects to US investors. However, the entry of foreign investors and any pre-entry requirements were subject to domestic laws and regulations. And this is a very common criterion that also applied to all ASEAN BITs concluded with European and other countries.
The new model of US BITs, adopted in 1980, went beyond those of other countries in requiring pre-entry National Treatment, which in
effect requires a treaty partner (see Tables 2 and Tables 3) to allow free entry of foreign investors, subject only to a negative list of exceptions negotiated and offered at the time of the agreement. Moreover, the new model of US BITs, unlike the old one, provides US investors with six basic guarantees (13):1) to ensure that US companies will be treated as favourably as their competitors (14);
2) to establish clear limits on the expropriation of investments and ensure that US investors will be fairly compensated;
3) to ansure free transfer of funds (15) into and out of the host country using the market rate of exchange;
4) to limit the ability of the host government to require US investors to adopt inefficient and trade distorting practices (16);
5) to ensure the right of US investors to submit an investrment dispute with the treaty partner's government to international arbitration (17);
6) to give US investors the right to engage the top managerial personnel of their choice, regardless of nationality.
In fact, the US BITs aimed to set the policy groundwork for broader multilateral initiatives in the OECD, and perhaps eventually in the WTO.
It is interesting to note that all ASEAN BITs, either concluded with European countries or with the US as well as others, were all subject to
domestic law regarding the establishment and control of foreign investment. However, ASEAN countries do accept the principles
of international law regarding investment protection. This common feature clearly signals that ASEAN countries preserve their sovereign
right in the liberalisation of investment regulations that they see fundamentally affecting their economy and security. They still need
to make sure that foreign investors admitted are well controlled and contribute economic progress to their economies according
to their plans and policies. But once they have accepted any foreign investors they are committed to grant protection to them at
a level reaching the requirements of international laws and principles to ensure the security of foreign investors. This shows
the firm commitment of ASEAN countries to the protection of foreign investors, and BITs have been regarded as an instrument to attract
foreign investment in this sense. It is very important to emphasise that ASEAN countries prefer not to have their territorial jurisdiction removed
by the liberalisation of foreign investment in absolute terms. There are far more factors to be taken into account in relation to foreign investment
than just liberalisation. Social problems, security, environment, employment and culture may be affected by foreign investment in the host
countries. These have been regarded and taken into consideration in the liberalisation of investment. Now I will discuss the ASEAN BITs
concluded with European countries, which also show the dichotomy between the restriction of foreign investment entry and the guarantee
of protection of foreign investment.ASEAN BITs concluded with European Countries
In most of then relationships, ASEAN countries are the recipients of inward capital flows and are agreeing to conditions of investment protection in the hope that more capital would flow into their territory from the traditional capital-exporting countries. They considered that a BIT could be a measure for attracting investment, since the existence of a BIT may be regarded as a guarantee of protection for foreign investors.In particular, uncertainties about the content of customary international laws on foreign investment, as well as the difficulty of concluding a binding multilateral investment agreement to protect foreign investors, are the main reasons for states to turn to bilateral investment agreements. Developed countries hoped that the guarantees in an intergovernmental agreement might be higher and more reliable than the domestic laws of the host countries. However, the vast majority of BITs actually concluded were not instruments for investment liberalisation but rather for protection of foreign investors from illegal expropriation/nationlisation and unfair compensation. BITs mainly leave the matters of entry and establishment to national discretion (Muchlinski, 1995: Ch 17; UNCTAD, 1999: 16). This can clearly be seen in all ASEAN BITs that are subject to domestic laws and regulations as well as economic policy, ranging from admission requirements, treatment after establishment (e.g. the Malaysia divestment rules), transfer of profits and other returns from investment, and especially the pre-requisites
for entitlement to investment promotion. Thus BITs do not affect the investment regimes, laws and regulations of ASEAN countries as
discussed above. Even though all BITs of ASEAN countries include the National Treatment and Most-Favoured-Nation principles, the applicability of those principles varies in particular instances and is still subject to domestic laws. If ASEAN BITs are regarded as one factor among many which may affect a potential investor's decision to invest in ASEAN countries, it is to ensure the stability and security of foreign investment in these countries but not for the reason that ASEAN uses BITs for investment liberalisation. Other factors are very important,
such as the economic profitability of an investment, political stability of the host country, the legal framework, the investment climate
or the favourable environment for investment that facilitates profit making by foreign investors. Political, economic and legal stability
are the main investment determinants. From the legal aspect, invesment law reform may nevertheless be import, particularly to strengthen
regional economic integration to gain advantages from economic of scale through the cnlargement of the regional market for trade and investment.To show that ASEAN BITs are subject to domestic investment laws and regulations, and that to fact BITs do not interfere with the policies
of ASEAN countries to screen foreign investment for economic development, the following section will analyse BITs between ASEAN countries
and some European countries by making a comparison of these ASEAN BITs._____________________________________________________________________________________________________________________
(1)
Assstant Professor, Dr., School of Law, Sukhothai Thammathirat Open University. She holds LL.B and LL.M (Tharrmasat University, Thailand),LL.M (Vrije Uruversiteit Brussels. Belgium), and Ph.D (Lancaster University, UK)
(2)
The Bilateral Investment Treaty (BIT) Program supports the key US government economic policy objectives of promoting US exports and enhancinginternational competitiveness of US companies. The BIT program's basic aims are to protect US investment abroad in those countries where US investors' right are not protected through existing agreements such as treaties of Friendship, Commerce and Navigation;
encourage adoption in foreign countries of market-oriented demestic policies that treat private investment fairly; and support the development
of international law standards consistent with these objective. See http //www. state. gov/www/issues/economic/7treaty.html.(3)
Treaty of Amity and Economic Relations between The Kingdom of Thailand and the United States of America, signed at Bangkok on
29th May 1966. Entered into force on 8th June 1968. 19 UST 584; TIAS 6540; 652 UNTS 253.
(4)
exchange of notes constituting an agreement relating to the guaranty of private investments between the United States of America and
Republic of Vietnam, signed at Washington DC, on 5th November 1957. Entered into force on the same day. 8 UST 1862;TIAS 3931; 300 UNTS 11.
(5)
Treaty of Peace, Friendship, Commerce and Navigation between the United States of America and Brunei signed in Brunei on 23rd June 1850.
Entered into Force on 11th July 1853. 10 Stat. 909; TS 33; 5 Bevans 1080.
(6)
Agreement relating to entry of nationals of either country into the territories of the other for purpose of trade, investment and related
activities between the US and the Philippines Exchange of notes at Washington, on 6th September 1955 Entered into force on 6th 1955.
6 UST 3030; TIAS 3349; 238 UNTS 109.(7)
Economic co operation agreement between Burma and the United States of Ahead. signed at Rangoon 21st March 1957 Entered
into force on 9th October 1957, Economic co-operation agreement between Indonesia and the United States of America signed
at Uproots Judd October 1950 Entered into force on 16th October 1950, Economic co-operation agreement between
the United Kingdom and tire United States of America signed at London 6th July 1940, applicable to the Federation of Malaya
(Melaysia) and Singapore 20th July 1948 Economic co-operation agreement between Laos and the United States of America,
with annex and exchange of notes, signed at Vientiane 9th September 1952 Entered into force 9th September 1952.
(8)
The Exchange of Notes constituting an Agreement between the United States of America and Indonesia relating to Investment
Guaranties signed and entered into force on 7th January 1967.
(9)
Exchange of Notes constituting a agreement between the United States of America and the Federation of Malaya relating to the
Guaranty Private Investments, signed and entered into force on 21st April 1959.
(10)
Exchange of Notes constituting an Agreement between the United States of America and the Republic of the Philippines relating
to Guaranties under section 111 (b) (3) of the Economic Co-operation Act of 1948, as amended, signed and entered into force on.. 19th February, 1952.
(11)
Investment Guarantee Agreement between the United States of America and Singapore signed and entered into force on 25th March 1966.
(12)
This was linked to the close relationship betw
een the US and some ASEAN countries on political grounds: for instance, the Philippines was a colony of the US and Thailand had
American military bases on its territory according to the Manila accord to protect the region from a communist invasion into the region
as Thailand has borders with Cambodia, Laos, and Vietnam which have been endangered by communism in the past.
(13)
Press Release by the Bureau of Economic, Business and Agricultural Affairs, 14th January 1998.
(14)
This includes when the US investors seek to initiate investment and throughout the life of that investment, subject to certain limited
and specifically described exceptions listed in annexes or protocols to the treaties.
(15)
This covers all transfers related to an investment, including interest, proceeds from liquidation, repatriated profits and infusions of
additional financial resources after the initial investment has been made. This is to ensure the right to transfer funds creates
a predictable environment guided by market forces.(16)
From the US's point of view, performance requirement such as local content requirement or export performance requirements all are prohibited.
This provision may also open up new markets for US producers and increase US exports. Thus the US investors protected by BITs can
purchase US produced components wrthout restriction on inputs in their production of various products. They can also import other
US-produced products for distribution and sale in the local market. They cannot be forced, as a condition of establishment or operation,
to export locally produced goods back to the US market or to third-country markets. (17)
(17)
This is ensure that there is no requirement to use that country's domestic courts.