Articles Legal News Thailand Lawyer Links Home


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

Part 18

Construction services, especially on-site construction work, are also opened in all ASEAN countries under GATS-Plus. This sub-service sector was not offered under GATS because it mainly involves commercial presence or the presence of natural persons of service providers in the territory of the country where services are provided. ASEAN countries' offers in this sub-sector enable service providers from other ASEAN countries to gain market access in the host country through local presence that also facilitates construction investment intra-ASEAN.

In particular, ASEAN countries liberalise their financial sector under GATS-Plus, in compliance with national policies to restructure and reform financial markets that have resulted in more generally liberal ASEAN financial market. Under GATS-Plus, Indonesia allows ASEAN banks to open branches in three new locations: Padang, Manado, and Ambon. Myanmar allows ASEAN banks' representative offices to be established in the country. The Philippines allows ASEAN commercial banking generally to gain market access, and especially Thailand allows 100% foreign-owned securities companies operating in the market in all modes of supply (1b, 2a, 3a, and 4b). Vietnam also allows 100% foreign equity in all insurance companies operating in the market. Singapore is liberalising the insurance sector in both life and non-life insurance sub-sectors. These improvements mainly involve commercial presence that previously was unbound under GATS.

The GATS-Plus improvements over GATS are in fact reinforcing generalised liberalisation of services in ASEAN. For example, ASEAN countries committed themselves under GATS to liberalise market access to their financial markets via commercial presence, but subject mainly to restriction on foreign shareholding in a finance company, insurance company, security company or commercial bank, generally at a maximum of 25-30%. Under GATS-Plus, ASEAN countries allowed (even foreign-owned) ASEAN companies to have equity holding up to 49%(122) , 60%(123) or even 100%(124) of paid-up capital in a financial company, insurance company, commercial bank, or Securities Company. Under GATS, ASEAN countries bound themselves to only existing companies but left unbound the granting of new licenses, which remain subject to approval; but under GATS-Plus ASEAN countries have agreed to grant more new licenses in the financial services sector. For instance, Thailand agreed to grant 50 licenses for opening new commercial banks, the Philippines bound itself to grant 10 new licenses for establishment by ASEAN banks. Therefore, if a non-ASEAN service provider initially entered into the ASEAN market under GATS, once it is established in one ASEAN country it can enjoy access to the whole region under GATS-Plus, including the right to establish in other ASEAN countries. Recently Prudential, a British insurance company, established itself in Thailand under GATS. Prudential Insurance can now also move into other ASEAN countries under GATS-Plus. Similarly, if any foreign insurance company becomes established in Vietnam where 100% equity is allowed, it can further enter into other ASEAN countries as a Vietnamese company.

Mutual Recognition under AFAS

Since border barriers (tariffs and other controls) imposed by nation states have been gradually eliminated or reduced, flows of trade and investment appear to be increasing, facilitating the openness of the world economic system. Since then, regulatory differences and variable internal requirements among nation states have come to be regarded as "non-tariff barriers" hindering, cross-border trade flows, even though they are not intended to be protectionist (Mathis, 1998: 7). Non-tariff barriers are much more difficult to eliminate. In the international sphere, under GATT, there were initial discussions of the measures to combat non-tariff barriers since the international negotiations in the Tokyo Round. However, it was only in the Uruguay Round that measures for eliminating or reducing non-tariff barriers have been formally agreed, especially in the TBT and SPS agreements, and also under GATS Art. VII, by encouraging the approach of mutual recognition as well as common international standards applicable by WTO Member States.

The principle of mutual recognition (MR) has been generated, initially in the EU, to facilitate the implementation of regional liberalisation due to the complexity and diversities of national laws, as an alternative to harmonisation. MR has been developed by the ECJ, especially in the Cassis de Dijon case(125) , in which the Court decided that national regulatory requirements, even if formally non-discriminatory ('indistinct'), could constitute barriers to trade that is contrary to the Treaty of Rome. So, in principle, the ECJ ruled that what is legally produced and sold in one country should be legally marketed in another. Therefore, internal national regulations and requirements may not be excessively imposed on imported products, and such regulations can be regarded as having an equivalent effect to quantitative restrictions that are invalid measures applicable to imported goods under Art. 30 of the Rome Treaty. This gave rise to the 'new approach' of the EU towards harmonisation, which encourages mutual recognition and its mandated recognition of other Member States' regulations, so that harmonisation of standards is only undertaken when and to the extent it is considered necessary. Member countries may still maintain their internal rules and regulations applicable to their domestic products, while permitting importation of "qualified" or "validly produced" products from other member countries. However, the Court also accepted that compliance with the importing country's rules may be necessary for specified reasons, especially health and safety and consumer protection(126) . This brings pressure on the EU member countries to agree on minimum harmonised standards or regulatory requirements, leading to the further harmonisation of rules or common standards. Consequently, the new approach enhances the complementarity and interaction between national rules and regional-level harmonised regulations. So in the EU mutual recognition operates in conjunction with some level of harmonisation (Bratton, William; McCahery, Joseph; Picciotto, Sol & Scott, Colin; 1996: 32). MR is therefore becoming a crucial instrument enhancing free trade either at regional or international level and it is now pursued by various contracting parties at regional, bilateral, and plurilateral level, such as the MRA between the EU and the US signed in 18th May 1998(127) . MR has also been adopted by ASEAN in AFAS, as discussed below.

Part 19


(122) Indonesia allows acquisition of local existing bank through the purchase of up to 49% of the shares of locally incorporated banks listed in the stock exchange.

(123) The Philippines allows acquisition of up to 60% of the voting stock of an existing domestic bank or investing in up to 60% of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines.

(124) Thailand allows 100% foreign equity participation in securities companies and in asset management companies. Vietnam allows 100% foreign-owned company providing services in life, accident and health insurance services, non-life insurance, reinsurance, services auxiliary to insurance and financial leasing services.

(125) The judgment delivered by the Court of Justice in Case 120/78 (1979) ECR 649, (1979) 3 CMLR 494. (the 'Cassis de Dijon' case) on 20th February 1979. European Community Court of Judgement Report 1979 No.1-3, Part 2, S.V6.9.

(126) In the case Cassis de Dijon the Court accepted that "Obstacles to movement within the Community resulting from disparities between the national laws relating to the marketing of the products in question must be accepted in so far as those provisions may be recognized as being necessary in order to satisfy mandatory requirements relating to particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer". Judgement of the Court of 20th February 1979, Case 120/78. European Community Court of Judgement Report 1979 No. 1-3, Part 2, S.V6.9.

(127) OJL 031, 04/02/1999 p. 3-80 and amendment adopted by 399 D0078 (OJL 031 04.02.99 p.1)