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The Investment Regime in ASEAN Countries(1)

Dr. Lawan Thanadsillapakul *


The analysis in this article offers a clear picture of the interaction of legal and economic factors in FDI policy, and the international investment regime, focusing on BITs and the emerging concept to establish multilateral rules governing international investment in the form of a MAI. Within these episodes of evolution and development ASEAN countries have gone through the process of FDI policy changes and legal adjustments to accommodate the changing global legal and economic environment. The pace of investment liberalisation taken by these countries was clearly influenced and affected by the interaction of legal and economic factors in the international sphere, and by a combination of their economic relations outside the region and their own economic policies.

In this article I will focus on analysing ASEAN countries' investment regimes i.e. national investment laws, BITs, and regional investment agreement based on the theoretical background analysed in the previous section. This will show how national laws of the ASEAN countries actually further the process of open regionalism, or how they need to adjust their laws and policies in order to facilitate the achievement of such aims. I will firstly discuss the ASEAN countries' national investment laws followed by the analysis of the actual ASEAN BITs entered into with the European countries and the US, the main home countries of inflow investment to the region, and compare them with the ASEAN regional investment agreement. The comparison among the ASEAN BITs, and also with ASEAN regional investment agreement emphasises the nature of the BITs as a lex specialis that allows flexibility of ASEAN countries in liberalising investment. However, as mentioned in earlier, the feasibility of a MAI prompts ASEAN countries to adjust their laws and policy to comply with its standard if ASEAN countries would accept a MAI that would establish a new and higher multinational standard of investment liberalisation and protection. This might be seen as an instrument accelerating the process of an open regionalism.

Since the 1980s ASEAN countries have embarked on significant reforms of their investment regimes. These investment liberalisation initiatives were undertaken unilaterally(2). They have occurred due to the recognition of the benefits of a degree of liberalisation and competition in response to change in the international climate, rather than due to the requirements of regional or international agreements. However, by 1995 ASEAN countries were conforming to the Agreement on Trade-Related Investment Measures (TRIMs) to eliminate trade-related performance requirements. Controls of FDI in ASEAN countries, however, remained quite extensive and complex(3). The policy instruments include the following:

restrictions on entry and establishment;
restrictions on the level of foreign ownership permitted;
special treatment of foreign investors;
  operational restrictions such as local content requirements and minimum export levels;
  investment incentives such as tax concessions.

In addition, there are many other policies that influence FDI such as tariff and other trade barriers, the lack of competition rules and policy, and the degree and type of protection of intellectual property rights.

Table 1 summarises the regulations of FDI in ASEAN countries and shows the main characteristics of investment regulations of these countries, on which the analysis of ASEAN national investment laws is based.

Table 1

Summary of the Regulations of FDI in ASEAN Countries

Countries/Laws Limitation of Ownership Restriction on Land Ownership Restricted Sector Performance Requirements Tax Incentives
Law No. 1, 1967
Law No. 11,1979
Law No.6,1968
Law No.12, 1970
Govt regulation, Presidential Decrees, Ministerial Regulations, Decision, Decree of Investment Co-ordinating Board (ICB)

subject to negative lists

(Law No.1 of 1967, Decree No. 54 of 1993, Foreign Investment Act 1994)


three types of land rights available

(Presidential Decree No. 34 of 1992)


23 restricted sectors and 12 prohibited sectors, including retail and wholesale trade, radio and television broadcasting

(Presidential Decree No. 54 of 1993, Foreign Investment Act 1994)


local content requirements and export performance requirements in various sectors
(Presidential Decree No. 54, 1993, Decree of the Ministry of Industry No. 114/M/SK/1993, Decree of the Ministry of Finance No. 645/KMK 01/1993)

priority sectors,
Pioneer Industries

( Law No. 6, 1968, Act No. 12, 1970, Guidelines of the Capital Investment Co-ordinating Board

The Promotion of Investment Act (PIA) of 1986,
The Industrial Co-ordination Act (ICA) of 1975, revised in 1986, MITI Regulations,
The Foreign Investment Committee Guidelines(FIC)
depending on proportion of production exported

(ICA 1975, MITI regulations)


No restriction

(except for some
threats to environment)


certain parts or components industries

(ICA 1975)

local content requirements in motor vehicles, export requirement depending on level of foreign equity

(ICA 1975, MITI regulations 1991)


Pioneer Status,
depending on local content linkages, value added, MTS ratio, export oriented manufacture, technology, R&D and HRD
(The Promotion of Investment Act, 1986, Malaysian Income Tax Act, 1967 (MITA)

Foreign Investments Act of 1991 R.A. 7042
as amended by RA 8179
subject to negative lists
(Foreign Investment Act of 1991, Second Regular Foreign Investment Negative List pursuant to executive order)

Lease right, up to 75 years, hold land subject to approval and conditions

(the Investors' Lease Act of 1993,
President Decree No. 1648)


retail trade, mass media, engineering, rice and corn production, defence related activities, small and medium-size domestic market enterprises, import and wholesale activities
Foreign Investment Act of 1991, Nationalisation Laws and Other Requirements, Various Republic Acts (RA), Constitution))

local content requirement , export performance requirements and technology transfer requirements in certain sectors, including motor vehicles
(the Car Development Program, Commercial Vehicle Development Program, the Motorcycle Development Program
Investment incentives
Tax and Non-Tax incentives
(The Omnibus Investments Code of 1987, RA 6810, BOI's Official Order No. 6 of 1993),Executive Order No. 470:
Tariff f Reform of 1991)
Company Act,
The Business Registration Act, Acts under administration of Economic Development Board

generally there is no restriction except in banks, air lines and shipping
(Company Act, the Banking Act, Monetary Authority of Singapore Act)

No restriction
arms and ammunitions manufacture, electricity, gas, and water, newspaper publishing, airlines and shipping
(the Control of Manufacturer Act, and the National Security Act, the Banking Act)

No performance requirements
Pioneer Status,
Package of tax incentives
(Economic Expansion Incentives Relief from Income Tax Act, Income Tax Act
Investment Promotion Act B.E. 2520 (1977)amended by the Investment Promotion Act (No. 2) B.E. 2534
(1997), the Alien Business Law of 1972
in restricted sectors or if less than 80% of output exported
(permission of the Board of investment Promotion, permission of the Ministry of Commerce, Civil and Commercial Code, Investment Promotion Act
Generally foreigners are not allow to own land
unless promoted by the Board of Investment

(Land Code, the Condominium Act, the Investment Promotion Act, Petroleum Act of 197, and the Industrial Estate Authority of Thailand Act)


banking and finance, insurance, certain public utilities and military goods, agriculture, animal husbandry, fishery
(the Alien Business Law, 1972, Commercial Banking Act, 1962, Act on the Undertaking of Finance Business, Securities Business and Credit Foncier Business, 1979 and the Securities and Exchange Act, 1992, Life Insurance Act, 1992 and the Casualty Insurance Act, 1992, Thai vessel Act, 1971
local content requirements in motor vehicles, pasteurised and skimmed milk, and various other manufacturing industries, domestic sales and export requirements in certain sectors
(the Factory Act(B.E. 2535), The Investment Promotion Act (B.E. 2520)
Tax and Non-Tax Incentives
(Investment Promotion Act, 1977, 1997,
BOI announcement,
BOI Guidelines: Criteria for granting Tax and Duty Privileges for promoted Projects, 1993, Revenue Code)

Source: Compiled by the author from national legislation.

Part 2


(*) Assistant Professor, Dr., School of Law, STOU. She holds LL.B and LL.M. (Thammasat University, Thailand), LL.M. (Vrije Universiteit Brussels, Belgium), and Ph.D. (Lancaster University, UK)

(1) The analysis in this chapter is by the author based on the compilation of ASEAN laws by varoius sources i.e. CCH Asia, APEC, ESCAP and ASEAN Secreatariat. There is a paucity of up-to-date secondary literature in this topic.

(2) All ASEAN countries gradually liberalise investment regulations step by step, aspect by aspect, and sector by sector without entering into any agreement for each liberalisation at the time. For instance, Indonesia launched various liberalisation packages: the January package of 1984: tax reform; the April package of 1985: shipping and customs reform; the May package of 1986: import and investment reform; the October package of 1986: sole importer and duty reform; the December package of 1987: opened up the tourism sector to foreign investors and relaxing the extension of divestment programme and relaxed the equity share of foreign investors in joint venture companies which export at least 65% of their production; the October and December package of 1988 : banking, capital markets, import and export reforms; the policy of May 1989: re-issued negative list which more open; the May of 1990: simplification of licensing and permit procedures; the June package of 1991: trade and investment reform; the July package of 1992: investment, trade, financial and manpower reform; the May package of 1993: banking reform; the June package of 1993: trade, industry and investment reform; the October package of 1993: trade, investment and environment; and the June package of 1994: simplification of the license and permit procedures.

(3) The analysis in this section is based on national investment laws of ASEAN countries, country study on investment regime of APEC member economies, and a study of the relevant national laws, also a study compiled in Doing Business in Asia. Published by CCH Asia Limited. The individual ASEAN country's laws in this loose-leaf are provided by (a) Indonesia: William A. Sullivan; (b) Malaysia: Yoong Nim Chor; (c) The Philippines: Sycip Salazar Hernandez & Gatmaitan; (d) Singapore: Drew & Napier; (e) Thailand: Baker & Mckenzie (Thailand)