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ASEAN Bilateral Investment Agreements
By: Dr. Lawan Thanadsillapakul
The ASEAN Agreement for the Promotion and Protection of Investments Agreement
The ASEAN Investment Agreement for the promotion and protection of investment, the only regional investment agreement in this region, was signed in 1987 between the six ASEAN countries. It was amended in 1996 when Vietnam became a member of ASEAN and acceded to the agreement. The ASEAN Investment Agreement is no different in form from the usual BITs. It requires that the investments, which are covered and protected under the agreement, must be specifically approved in writing and registered by the host country subject to such conditions as it deems fit for the purpose of the agreement. This is not only to ensure that investment admitted in the territory of ASEAN contracting parties is beneficial to the host countries and under the existing investment screening legislation, but also to meet the objective of the agreement to facilitate the industrial co-operation scheme under the Declaration of ASEAN Concord. There is also a provision that conditions may be imposed to ensure that the laws and regulations applying to foreign investment in each country are preserved.
In the ASEAN investment agreement, the treatment of foreign investment is based on the MFN standard Art. IV (2) of the agreement provided that:
'All investments made by investors of any Contracting Party shall enjoy fair, and equitable treatment in the territory of any other Contracting Party. This treatment shall be no less favourable than that granted to investors of the most-favoured-nation"
However, the agreement provides that two or more parties may negotiate to accord National Treatment, but such agreement shall not entitle any other party to claim national treatment under the MFN principle (27). So it can be seen that even under the ASEAN Agreement for the Promotion and Protection of Investment, ASEAN countries were generally not willing to grant National Treatment to other countries, as they did not give National Treatment, even to their partners in ASEAN. Indeed, it is not until the launch of the AIA in 1998 that NT and MFN treatment has been extended to ASEAN and all investors.
On expropriation and compensation, the agreement also applies the minimum standard principles, which requires the payment of adequate compensation based on market value, paid without unreasonable delay, and requires expropriation to be based on the non-discrimination principle, for the public interest and under due process of law.The dispute settlement clause can refer to ICSID if the parties desire. The agreement also provided an alternative of setting disputes by submitting to UNCITRAL or other regional arbitration bodies. Also, in the first instance, the parties should attempt to settle their disputes amicably between them before submitting the case to the arbitration tribunal.
In conclusion, it can be seen that ASEAN BITs and the ASEAN regional investment agreements are not different either in form or in principle, as regards the treatment of foreign investors, who are generally subject to domestic investment laws and regulations. This shows that ASEAN countries have maintained a very strong position in preserving their sovereignty in policy making and governing foreigninvestment ot comply with either economic development plans, as well as strictly controlling their economic activities that are geared towards the economic master plans. In other words, governmental intervention has been very important in this region in terms of investment concerns.
However, after the crisis took place in Asia in 1997, ASEAN launched many new framework Agreements including a framework agreement on the ASEAN Investment Area, which has dramatically changed ASEAN policy in restricting entry and establishment of foreign investment.
The likelihood that ASEAN countries would accept the Multilateral Agreement on Investment, which had been negotiated in the OECD, was not strong. However, the negotiation of MAI in OECD was ended after it encountered a wave of anti-MAI opposition from developing countries. And also from NGOs from developed countries. However, MAI may proceed in WTO (28) in the millenium round instead. Even so, it seems difficulties lie ahead unless the substance of MAI is altered and developing countries take part in the negotiation process.
This raises the question of what is a new direction for ASEAN in economic development, especially in the regulation of investment, which has been the main engine propelling economic growth in ASEAN. Whether ASEAN will further liberalise trade and investment to establish an open door policy, or strengthen intra-ASEAN economic integration, which could mean preferential treatment among ASEAN members, is the main issue. However, to attractiveness of the investment environment in the region , legal, political, and economic stability and predictability, are essential, especially for foreign investors who require a high standard of investment regulations and protection. Since more than 70% of the inflow of FDI is from the OECD countries, they might use this leverage against ASEAN countries in making decisions on their investment regulations.
ASEAN countries now need to re-think their strategies in attracting foreign investment. The establishment of the ASEAN Investment Area gas been regarded as a new policy option of ASEAN to move toward closer economic integration within the region and more liberalised investment intra-ASEAN. AIA would also encourage the inflow of foreign direct investment due to the economies of scale generated by the enlargement of the ASEAN market through regional economic integration and intra-ASIAN investment liberalistion. Crucially this may lead to enhanced regional ASEAN investment laws and regulations.Harmonisation of ASEAN investment laws at a certain level will ensure the certainty and unity of the ASEAN investment regime and practices. Harmonious ASEAN investment laws may concertedly guarantee foreign investment protection against expropriation and aware compensation based on international law. Moreover, harmonisation of investment laws may enhance the system of investment-related laws and regulations, such as regulations on foreign employment, labour standards, environmental protection, taxation, and competition rules. A favourable legal environment for foreign investment in ASEAN is an important determinant in the allocation of foreign investment in addition to a favourable economic environment.
Once ASEAN implements intra-regional trade and investment liberalisation, there is a necessity to ensure that fair competition among firms is firmly established, as deregulation and the elimination of previous restrictive laws would take place. This is to ensure that unfair competitive practices among private firms such as monopolisation, anti-competitive mergers & acquistions, and restrictive business practices would not replace restrictive government laws and regulations Therefore, the more liberal the ASEAN economy becomes, the greater the necessity to regulate firms and enterprises that operate freely in the region under competition rules. The institutional and legal framework so ASEAN countries strengthening ASEAN economy and balancing the inflow of foreign trade and investment and the regional competitiveness is essential.
Art IV (4) provided that " Any two or more of the Contracting parties may negotiate to accord national treatment within the framework of this Agreement. Nothing herein shall entitle any other party to claim national treatment under the most-favoured-nation principle".
The EU and Japan have proposed bringing the investment issue under the umbrella of WTO.