Investment Protection – One of the Pillars of the ASEAN Economic Community

One of the Pillars of the ASEAN Economic Community

In 2012, the ASEAN Economic Community (AEC) was the only economic area in the world to agree on a comprehensive agreement on investment protection for foreign investors. In 2012, the ASEAN Comprehensive Investment Agreement (ACIA) was finalised between all ten states of the community. In the set of rules five principles prevail, namely:

  • Investment liberalisation for foreign investors
  • Non-discrimination [i.e. no foreign firm can be treated less favorably than its local or foreign competitors, for example in tax regulations and investment incentives (most-favored-nation status)]
  • Transparency of national regulations
  • Investment protection [e.g. against expropriation or confiscation of investments and measures that are directly or indirectly equivalent to it]
  • Legal protection [through mediation and arbitration mechanisms, prior to and/or in parallel with national mechanisms].

Although the agreement was only concluded within the ASEA member states initially, that still means that it is also indirectly valid for investors from the West. Taking a specific example: as soon as a foreign investor sets up its own 100 % foreign owned subsidiary in an ASEAN state, this new entity, expanding inside ASEAN, is treated in the same way under the protection of the ACIA as any other firm from the member states.

In the ACIA agreement, mediation and arbitration mechanisms play a special role. However, the fact that certain institutions are still missing in the Economic Community, such as an ASEAN court of law that sits above the national courts, is often regarded, justifiably, as a general weakness of all agreement within the AEC treaties.

Knowing this, therefore, the special “ASEAN Way” of conflict resolution is often referred to in the Community. The meaning of “ASEAN WAY” is that ASEAN relies on talking the problem through with each other and on reaching negotiated solutions, rather than getting involved in legal disputes in a court of law or elsewhere. It should remain an open question here as to how far this terminology to be considered as only a polite euphemism for the lack of enforcement mechanisms with which to penalize violations of the treaty.

The fact is that the ACIA provides a conciliation process (i.e. a mediation process and arbitration processes), which can precede the corresponding processes in the national jurisdiction or be in parallel with them. The arbitration organizations point out rightfully that these processes consist of more than just mediation alone.

Because of the adverse publicity that would be associated with arbitration proceedings, generally the threat of invoking them already provides a way of putting on pressure on national authorities to prompt them to make concessions. Moreover, almost all of the ASEAN states have signed international arbitration agreements, under which arbitral awards are nationally recognized and enforced by qualified arbitration organizations.

The restrictions or “Provisions” contained in the investment protection agreement regarding national jurisdictions are often criticized, as indeed they were by the Thai BOI at the Forum of Experts. An example was given by Dr. Gunter Denk, the Sanet representative and experienced consultant of Foreign Direct Investments (FDI) in ASEAN. Denk explained that there are about 50 pages in the agreement itself and complained that, in contrast, there are more than 170 pages of provisions diluting the agreement through limitations by national laws of the signatory states.

As a result, even though the rules and regulations of protection law appear to be clear and unambiguous, it is continually necessary to check how far their validity and scope have been watered down or circumvented by national regulations. This deluge of “provisions”, this was one of the speakers’ suggestions, should be limited to a small number of “highly sensitive” national interests of the signatory states, similar as it is in the handling of other agreements, e.g. in ASAN Trade of Goods Agreement (ATIGA).

In this context, representatives from industry pointed out the fact that middle-sized firms in particular have very limited capabilities for testing, in advance, in their own legal departments, their chances of evaluating the agreement in investment decisions. The representatives of industry emphasize that firms concentrate their resources on the manufacture and sale of their products, and they are neither able nor willing to get into protracted legal discussions about the interpretation of agreements.

Representatives of well-known Thai firms also pointed out that, even inside the ASEAN community to a certain extent, it can take 5 to 8 years for an investment in a neighbouring country to pass through the official procedures. As the reason for this, last but not least, lack of knowledge of the common ASEAN agreements have been detected at middle management level in government departments. Middle managers often receive no sufficient training about the overriding importance of the ASEAN rules and regulations and sometimes the concept has not even been explained to them.

In this, all participants in this forum considered it as an urgent task of national ministries to establish in their departments the practical knowledge and guide lines in both the spirit and the letter of the law, of the community regulations. Numerous regulations, among them those for the granting of work permits and visas for the investors’ management, are in urgent need of harmonization.

It was also suggested that training together, and mutual exchange of information, between middle management in government departments and in industry should be organized. This could serve to strengthen mutual understanding of problems that are encountered in official decision-making processes and thus would be consistent with the “ASEAN way” of problem resolution.

In the overall context of the Forum, all of the experts praised the activity of Thailand’s Board of Investment (BOI), which used the event to draw attention to the rules and regulations on investment protection and the necessity of implementing them at national level.

Tip 1:

In April, well-known experts from the administration of ASEAN, the Thai Board of Trade, leading arbitration institutions, representatives of the Thai industry, and also selected consultants advising foreign investors, were invited to a Forum of Experts and panel discussion by the Thai Board of Investment (BOI), led by Bussarakum Sriratana (Executive Director of International Affairs Division).

Dr. Gunter Denk, President of SANET ASEAN ADVISORS, discussed the experiences of industry at the ASEAN Investment Forum with Mulachet Dharachand (Director of Corporate Development at Siam Cement Group) and Rakesh Sing (Director of Corporate Strategy at Srithai Tableware). Professor Dr. Sufian Josuh (World Trade Institute in Malaysia) led the panel.

Speakers and podium participants with BOI Executive Director Bussarakum Sriratana (centre) at the Forum of Experts for the ASEAN Comprehensive Investment Agreement (ACIA). From left to right: Dr Ioannis Konstantinidis (Regional Center for Arbitration, Kuala Lumpur), Managing Director Anita Komindre (Thai Arbitration Center), Vice President Arin Jira (Federation of Thai Industries), Hilvy Hanriany (ASEAN Economic Community, Jakarta), Bussarakum Sriratana (BOI Thailand), Dr. Gunter Denk (SANET ASEAN ADVISORS), Director Rakesh Sing (Srithai Tableware), Prof. Dr Julien Chaisse (University of Hong Kong & World Trade Advisors), Prof. Dr Sufian Jusoh (World Trade Institute & University Kebangsaan, Malaysia) and Director Kulachet Dharachandra (Siam Cement Group).