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

Part 24

In practice, even though intra-ASEAN liberalisation under AFTA, AIA, and AFAS would strengthen and enhance intra-ASEAN trade and investment, ASEAN countries are still furthering generalised liberalisation internationally. Moreover, the implementation of ASEAN integration schemes is interactive with and complementary to each other that goes beyond intra-regional integration. This can be justified, for instance, from the results of the implementation of ASEAN liberalisation in investment regimes that also contribute to the elimination of ASEAN countries' most common limitations under GATS, i.e. equity restriction. As discussed above, commercial presence of service providers in ASEAN countries is subject to the existing domestic laws that generally require foreign service suppliers to enter into joint ventures with domestic nationals with limited equity. Therefore, under investment regime liberalisation, ASEAN countries would allow a 100% foreign-owned company to freely move intra-ASEAN that directly helps promote liberalisation in service trade and FDI, not just from within, but also from outside ASEAN. This would result in phasing out ASEAN limitations on market access involving commercial presence under GATS. Since many services are intangible and non-storable, they can only be delivered to foreign market if foreign affiliates can be established to produce and sell those services in the host countries, or if at least a right of commercial presence is granted to facilitate transactions. Therefore, ASEAN countries' liberalisation of investment regime, i.e. domestic laws on equity restriction and the opening up of industries closed to foreigners, also helps service trade liberalisation. For example, the opening up of service sectors in banking, insurance, and telecommunications in ASEAN, along with the elimination of equity restriction, would greatly help enhance liberalisation in service trade at international level because non-ASEAN service providers would be able to gain market access in ASEAN countries and also enjoy ASEAN preferences. So under AFAS and AIA, preferential treatment among ASEAN countries and generalised liberalisation would be balanced. This would also fruitfully enhance AFTA as a free trade area since the reduction in tariff and non-tariff is comprehensively implemented under the three schemes in an interactive way complementarily. In fact, ASEAN liberalisation is a training ground at the regional level before moving ASEAN towards an open multilateral trading system at the global level.

ASEAN's relationship with the Asia-Pacific Economic Co-operation (APEC) forum has also linked ASEAN economy with the Asia-Pacific region. The interdependence between the two reinforces broader and generalised liberalisation as ASEAN countries are members of APEC, and they also have commitment to implement liberalisation in trade and investment under APEC. Even though APEC focuses on unilateral action(146) , concerted unilateral liberalisation has occurred, for instance, in service sectors among APEC economies(147) . ASEAN member countries have actively implemented the Bogor Declaration(148) aiming at liberalising trade and investment in the region by the year 2020 for developing member countries, and 2010 for developed members. This has resulted in the resolution of ASEAN Vision 2020(149) responding to the commitment under APEC. Thus, even though the APEC commitments are non-legally binding, APEC members including ASEAN countries have "concerted unilaterally" liberalised trade and investment fruitfully. Consequently, ASEAN liberalisation in trade and investment also reinforces generalised liberalisation internationally consistently with GATT/WTO, responding to the commitment to liberalisation under APEC based on Open Regionalism. Therefore, ASEAN liberalisation is complementary and balanced with broader regional and global liberalisation.


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.

Part 25


(146) The APEC Committee on Trade and Investment (CTI) has developed the formulation of APEC Non-binding Investment Principles, which was adopted in the Second Leaders' Meeting in Bogor, Indonesia. This document outlines the principles for regional investment based upon liberalization and fairness that even non-APEC investors should be treated equally with APEC investors and with indigenous investors under the principle of non-discrimination and national treatment. See Kodama, 1996: 375-76, also see Davidson, 1997a: 1.

(147) PECC's Survey of impediments to Trade and Investment in the APEC Region found that most APEC economies impose few barriers on foreign providers of computer services, value added telecommunications services and tourism services. Quoted in Findlay, Christopher and Warren, Tony. "The General Agreement on Trade in Services and Developing Economies in Asia-Pacific". A report prepared for the UNESCO, May 1998. Also an analysis of the individual Action Plans of APEC member economies highlights the barriers on service trade that are to be removed unilaterally within APEC process even in the areas traditionally 'untouchable'. There has been significant action such as the pace of reform in electric power generation distribution and marketing. For instance the privatization reform in Thailand including EGAT (Electric Generation Authority of Thailand) that allows foreign investors to take part in the privatization.

(148) The Second APEC Leaders' Meeting in Bogor, Indonesia in 1994 signed the Bogor Declaration to commit APEC members to liberalization of trade and investment that goes beyond GATT as an Open Regionalism of the Asia-Pacific. As APEC is not created as a bloc or formalized a closed regional integration, APEC members concerted unilaterally liberalize trade and investment, and non-APEC would be treated equally under the principles of nondiscrimination and national treatment. APEC's Bogor Declaration has set the target of trade and investment liberalization and binds member countries to achieving this goal in the region by the year 2010 for developed members and 2020 for developing member countries.

(149) Hanoi Declaration of 1998, the result of the Sixth ASEAN Summit, 16th December 1998. ASEAN countries called for "a concerted of Southeast Asian Nations, outward-looking, living in peace, stability and prosperity, bonded together in partnership in dynamic development and in a community of caring societies".