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Framework Agreement on the ASEAN Investment Area (AIA)

Dr. Lawan Thanadsillapakul


The most important issue of ASEAN regionalisation is to generate a common political will of ASEAN countries to agree to the implementation of deeper integration in the region. Over three decades, ASEAN countries have preferred to have their commitment based on "consensus" and have provided loose framework-agreements with flexible practice rather than a concrete legally binding regime. This is the main obstacle to the upgrading of ASEAN regional integration, as evidenced by the modest success in economic co-operation of ASEAN in the past.

From a legal point of view, ASEAN needs to take implementation of all new schemes seriously, and institutional, legal, and administrative requirements are needed to ensure implementation. Davidson has pointed out that "As has been said, in international economic law, the economist tells us what should be done while the lawyer is left to figure out how to do it" (Davidson, 1992: 139). To construct regional economic integration is largely a problem of managing interdependence. Governments may be limited in their choices by sets of rules, procedures and principles. Even though at present, each ASEAN country is free to regulate economic transactions that take place within its boundaries, its international economic relations are governed by an international legal framework, which comprises multilateral, plurilateral and bilateral agreements. Such laws establish parameters within which international trade in goods and services and foreign investment is conducted. An international framework is necessary in order to promote increased order and predictability in international transactions. Therefore, private sector entities that participate in the ASEAN scheme need a clear rule system that ensures stability and predictability to potential investment and trade. This can take place only if ASEAN members enter into binding agreements and implement the agreed framework through domestic legislation.

The success of ASEAN in economic integration is very crucial for sustaining economic growth and development in the region. Also the success of ASEAN will contribute to the global economy. This is evidenced by the recession of global trade in 1998 soon after the crisis took place in Asia. According to the report of World Trade Organisation: "world trade growth slowed in 1998 after unusually strong growth in 1997", the rate of growth in the volume of world merchandise exports slowed to 3.5% in 1998 from over 10% in 1997, due largely to continuing economic contraction in much of Asia"(61). The trend of global trade reflects the interdependence of the world market and the ASEAN country economies. This further implies the need for a global regime that also encourages economic growth of regions of the world, especially the sustainability of Asia and ASEAN economic growth, which would help to contribute to the global economy, since this region's trade accounts for a quarter of global trade(62).

Finally, a new direction of ASEAN regional integration is the emergence of new approach to balance regionalism and globalisation. ASEAN has adopted "Open Regionalism" and is moving toward deeper regional integration based on a harmonious legal system and the mutual recognition principle. Open economic integration can be consistent with globalisation and the worldwide liberalisation of trade and investment, as this integration process does not create an economic bloc against non-member of the group. ASEAN has been implementing deeper economic integration in the region while opening its market to outsiders. This is a new direction of ASEAN regional integration. However, to implement Open Regionalism ASEAN still needs a certain level of legal and policy harmonisation or mutual recognition among ASEAN member countries. Therefore, legal and institutional frameworks for implementing "Open Regionalism" are required even though the system is not necessarily the same as the ones implemented in other regions, such as the EU.


(61) WTO reports on 16th April 1999. The report further stated that Trade contraction in Asia has been the biggest factor in the global trade slowdown, imports into Asia fell by 8.5%. This also results in global exports of commercial services recorded the first annual decline in value terms since comprehensive statistics became available in the mid-1980s. World GDP and trade growth slowed in 1998 as the Asian crisis deepened and its repercussions were felt increasingly outside Asia (these are the countries that were most immediately affected by the financial crisis that broke in mid-1997 Indonesia, Malaysia, Philippines, the Republic of Korea and Thailand.)

(62) World Trade Report of WTO in April 1999. Total global trade amounted to US$ 10,635 billion and the Asian trade is recorded at US$ 2,384 billion, which is the lowest level of stagnation for the region in history.