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Open Regionalism and Deeper Integration: The Implementation of ASEAN Investment Area (AIA) and ASEAN Free Trade Area (AFTA)

Part 15

The commitments on market access involve the liberalisation of the pre-entry stage, and under GATS and AFAS, are subject to the limitations or conditions made by member countries. At the post entry stage, the non-discrimination principle of national treatment applies if a member country bind itself to grant such a right. However, even if a state agrees to grant market access the NT obligation may remain "unbound", which means that no post-entry NT commitments are made. Even if a state does bind itself on NT, this can be subject to conditions and exclusions.

Liberalisation of Trade in Services

Under the AFAS, ASEAN countries commit themselves to liberalise trade in services in a substantial numbers of sectors within a reasonable time-frame through the principles of stand still and roll back(112) . Under Art. IV, they will negotiate to liberalise the specific service sectors beyond the commitments already made under GATS by each individual member country (see Diagram 1 summary of ASEAN country schedules under GATS). AFAS involves market access commitments that are preferential in nature, as Art. IV (1) specifies that ASEAN countries will accord preferential treatment to one another on a MFN basis. However, MFN exemptions are still available under GATS-Plus, even though there was no MFN exemption clause as such in Art. IV or in the AFAS Framework Agreement itself. It appeared in the Protocol to Implement both the initial and Second Package of Commitments under the AFAS and they are integral parts of AFAS Framework Agreement(113) . Therefore, MFN exemptions also exist in the GATS-Plus scheme. Nevertheless, there is neither a provision for reviewing the MFN exemptions nor a period for phasing out such exemptions. This seems to leave them to be eliminated under Art. III which envisages that all existing discriminatory measures and market access limitations are subject to stand still and roll back principles, so that MFN exemptions should be phased out eventually. MFN exemptions also can be regarded as included in each negotiation round of the specific commitment package. ASEAN countries can be flexible in negotiating their specific sector commitments and exemptions, as liberalisation of trade in services is a 'bottom-up' process. However, any limitations are subject to the general obligation and commitment under Art. III of AFAS to be progressively phased out. Preferential treatment under GATS-Plus and all commitments under GATS will be extended to all ASEAN member countries including those that are non-WTO members (Laos and Vietnam).

The first round of negotiations of ASEAN services liberalisation began in 1996 and ended in 1998 in the initial seven priority sectors, which have been identified at the 5th ASEAN Summit: air transport, business services, construction, finance, marine transport, telecommunications, and tourism. Under the Hanoi Action Plan of December 1998 for accelerating the implementation of AIA and AFAS, ASEAN countries agreed to extend the sector coverage in GATS-Plus to cover all services sectors and all modes of supply(114) , and the second round of negotiations began in 1999 and will end in 2001.

ASEAN Commitments under GATS

Since commitments under AFAS must be beyond those under GATS, a review of the reservations and exclusion from GATS commitments of ASEAN countries will indicate the kinds of preferential commitments that may be negotiated in this GATS-Plus scheme. Looking first at the ASEAN country schedules under GATS for horizontal commitments(115) (see Tables 1 and 2), the most common limitations imposed are in the areas of market access involving both commercial presence and the presence of natural persons. Particularly, commercial presence is often restricted by requiring foreign service providers to enter through joint ventures whose ownership must still be retained by domestic nationals who can serve as members of the board of directors of the company(116) . This requirement is dominant in all ASEAN countries' investment regimes, as commercial presence involves foreign direct investment. Additionally, most ASEAN countries have restricted the entry and duration of stay of foreign managers, executives and technical specialists. Indonesia, Malaysia, the Philippines, and Thailand impose restrictions on ownership of land by foreign service providers. Brunei, the Philippines, and Singapore impose restrictions on the number of foreign nationals who can be members of the Board of Directors of a company.

Regarding specific sectoral commitments, ASEAN countries made commitments in air transport, business services, construction, finance, marine transport, telecommunication and tourism under which they made limitations on market access specific to particular service sub-sectors, and limitations on the NT principle. These limitations covered the four modes of supply: cross-border supply, consumption abroad, commercial presence, and the presence of natural persons (see detailed specific sectoral commitments and exemptions of ASEAN countries made under GATS in Tables 4 and 5).

In particular, the banking service sector includes the sub-sectors of acceptance of deposits, lending, trading of financial instruments (which includes foreign exchange), and financial asset management. The major limitations consist of branching restrictions, and ownership restrictions such as requirements that foreign service providers enter in joint ventures with local banks. In the insurance sector: life insurance, non-life insurance, reinsurance and broking and other agency services, the main limitations are on market access ranging from requiring prior approval for the establishment of new companies to limiting foreign shareholding in such companies. Malaysia imposes an economic needs test before allowing insurance companies into the domestic market. Indonesia requires higher paid up capital for foreign companies. Other common limitations are restrictions on the membership in the Board of Directors as well as on the hiring of managerial or technical personnel.

Part 16


(112) Art. III of AFAS provided that "Pursuant to Art. 1 (c), Member States shall liberalize trade in services in a substantial number of sectors within a reasonable time-frame by: (a) eliminating substantially all existing discriminatory measures and market access limitations amongst Member States; and (b) prohibiting new or more discriminatory measures and market access limitations".

(113) Section 3 of the Protocol to implement the second package of commitment under the ASEAN Framework Agreement on Services reads: The Annexes to this Protocol shall consist of the Horizontal Commitments, Schedules of Specific Commitments and the Lists of Most-Favoured-Nation Exemptions. And Art. VIII of the AFAS agreement provided that: Schedules of Specific Commitments and Understanding arising from subsequent negotiations under this Framework Agreement and any other agreements or arrangements, Action Plans and Programmes arising thereunder shall form an integral part of this Framework Agreement. Therefore, section 3 of the Protocol is part of AFAS agreement.

(114) Statement on Bold Measures, para 10. See http:/

(115) Horizontal commitments refer to commitments that are common or run across all service sectors of contracting parties.

(116) ASEAN Secretariat's Information Paper: Member Country Commitments under the GATS. Document No. 8. Second Meeting of the Ad-Hoc Working Group on ASEAN Co-operation in Services, 17th-19th January 1995, Makati, the Philippines.