ASEAN II MIDTERM REVIEWER, S.Y.
2016-2017
I. Joseph Weiler, International and Regional Trade Law:
The Law of the World Trade Organization, Chapter II
(2013)
Note: This part was lifted from Nors Tansingcos ASEAN I Reviewer.
Comparative Advantage
Comparative advantage about identifying which activities a
country (or firm or individual) is most efficient at doing
Each country has a different comparative advantage.
If each country specializes in products in which it has a
comparative advantage, both will gain from trade.
In essence, the theory of comparative advantage says that it pays
countries to trade because they are different.
There is no reason to assume that a countrys comparative
advantage will be static.
Stages of Economic Integration (Bela Balassa [1928-1991], The
Theory of Economic Integration, 1961)
Economic integration as a PROCESS and as a STATE OF
AFFAIRS
o As a process, it encompasses measures designed to abolish
discrimination between economic units
belonging to different national states.
o As a state of affairs, it can be represented by the absence of
various forms of discrimination
between national economies.
Integration vs. Cooperation
o Cooperation includes actions aimed at lessening
discrimination, e.g. international agreements on
trade policies
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o Process of economic integration comprises measures that
entail the suppression of some forms of
discrimination, e.g. removal of trade barriers
Degrees of economic integration
o Free trade area tariffs (and quantitative restrictions)
between the participating countries are
abolished, but each country retains its own tariffs against
nonmembers
o Customs union involves, besides the suppression of
discrimination in the field of commodity
movements within the union, the equalization of tariffs in
trade with nonmember countries
o Common market higher form of economic integration;
not only trade restrictions but also
restrictions on factor movements are abolished
o Economic union combines the suppression of restrictions
on commodity and factor movements
with some degree of harmonization of national economic
policies, in order to remove discrimination
that was due to disparities in these policies
o Total economic integration presupposes the unification
of monetary, fiscal, social, and
countercyclical policies and requires the setting-up of a
supra-national authority whose decisions are
binding for the member states.
World Trade Organization
Deals with the rules of trade between nations at a global or near-
global level
Essentially, the WTO is a place where member governments go, to
try to sort out the trade problems they face with each other. Its a
negotiating forum.
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The WTO is not just about liberalizing trade. In some
circumstances, its rules support maintaining trade barriers e.g. to
protect consumers or prevent the spread of disease.
Its a set of rules. At its heart are the WTO agreements, negotiated
and signed by the bulk of the worlds trading nations, which provide
the legal ground-rules for international commerce.
o Although signed by governments, the goal is to help
producers of goods and services, exporters, and importers
conduct their business, while allowing governments to meet
social and environmental objectives.
Multilateral trading system
o overriding purpose is to help trade flow as freely as
possible so long as there are no undesirable
side effects because this is important for economic
development and well-being
Trade relations often involve conflicting interests. It helps to settles
disputes.
The WTO began life on 1 January 1995, but its trading system has
existed since 1945. GATT had provided the rules for the system. The
[GATT] Uruguay Round (1986-94) led to the WTOs creation.
Whereas GATT had mainly dealt with trade in goods, the WTO and
its agreements now cover trade in services, and in traded inventions,
creations and designs (IP).
Principles of the Trading System
Trade without discrimination
o Most-favoured-nation (MFN)
-A country should not discriminate between its trading
partners, giving them equally MFN status.
-MFN means that every time a country lowers a trade barrier
or opens up a market, it has to do so for
the same goods or services from all its trading partners
whether rich or poor, weak or strong.
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-Some exceptions under strict conditions are allowed e.g.
discriminating against goods traded from
outside the group, giving developing countries special access
to their markets, raising barriers against
products that are considered to be traded unfairly from
specific countries.
o National treatment
-A country should not discriminate between its own and
foreign products, services, or nationals.
-Principle only applies once a product, service, or item of IP
has entered the market. Thus, charging
customs duty is not a violation even if locally-produced
products are not charged an equivalent tax.
Freer trade
o Barriers coming down through negotiation
o The WTO agreements allow countries to introduce
changes gradually, through progressive
realization. Developing countries are usually given longer
to fulfil their obligations.
Predictability
o Foreign companies, investors, and governments should be
confident that trade barriers (including tariffs and non-tariff
barriers) should not be raised arbitrarily; tariff rates and
market-opening commitments are bound in the WTO.
o A country can change its bindings, but only after
negotiating with its trading partners, which could mean
compensating them for loss of trade.
o In agriculture, 100% of products now have bound tariffs.
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Promoting fair competition
o Discouraging unfair practices such as export subsidies
and dumping products at below cost to
gain market share
o Open, fair, and undistorted competition
o The rules on non-discrimination MFN and national
treatment are designed to secure fair
conditions of trade.
Encouraging development and economic reform
o Less developed countries must be given more time to
adjust, greater flexibility, and special
privileges.
o Over three quarters of WTO members are developing
countries and countries in transition to market economies.
GATT Article XXIV, 4-10 and Understanding on the Interpretation of
Article XXIV of GATT
(2) Customs territory any territory with respect to which separate
tariffs or other regulations of commerce are maintained for a
substantial part of the trade of such territory with other territories
4. The contracting parties recognize the desirability of increasing
freedom of trade by the development, through voluntary agreements,
of closer integration between the economies of the countries parties
to such agreements. They also recognize that the purpose of a
customs union or of a free-trade area should be to facilitate trade
between the constituent territories and not to raise barriers to the
trade of other contracting parties with such territories.
5. Accordingly, the provisions of this Agreement shall not prevent,
as between the territories of contracting parties, the formation of a
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customs union or of a free-trade area or the adoption of an interim
agreement necessary for the formation of a customs union or of a
free- trade area; Provided that:
(a) with respect to a customs union, or an interim agreement leading
to a formation of a customs union, the duties and other regulations of
commerce imposed at the institution of any such union or interim
agreement in respect of trade with contracting parties not parties to
such union or agreement shall not on the whole be higher or more
restrictive than the general incidence of the duties and regulations of
commerce applicable in the constituent territories prior to the
formation of such union or the adoption of such interim agreement,
as the case may be;
-The evaluation must be based upon an overall assessment of
weighted average tariff rates and of
custom duties collected.
-Assessment based on import statistics for a previous
representative period to be supplied by the
customs union
(b) with respect to a free-trade area, or an interim agreement leading
to the formation of a free-trade area, the duties and other regulations
of commerce maintained in each if the constituent territories and
applicable at the formation of such free-trade area or the adoption of
such interim agreement to the trade of contracting parties not
included in such area or not parties to such agreement shall not be
higher or more restrictive than the corresponding duties and other
regulations of commerce existing in the same constituent territories
prior to the formation of the free-trade area, or interim agreement as
the case may be; and
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(c) any interim agreement referred to in sub-paragraphs (a) and (b)
shall include a plan and schedule for the formation of such a customs
union or of such a free-trade area within a reasonable length of time.
-Should exceed 10 years only in exceptional cases; Member
parties must provide full explanation to
the Council for Trade in Goods of the need for a longer
period.
6. If, in fulfilling the requirements of sub-paragraph 5 (a), a
contracting party proposes to increase any rate of duty inconsistently
with the provisions of Article II, the procedure set forth in Article
XXVIII shall apply. In providing for compensatory adjustment, due
account shall be taken of the compensation already afforded by the
reduction brought about in the corresponding duty of the other
constituents of the union.
-Should the reductions not be sufficient to provide the
necessary compensatory adjustment, the
customs union would offer compensation, which may take
the form of reductions of duties on other
tariff lines.
-GATT 1994 imposes no obligation on Members benefiting
from a reduction of duties consequent
upon the formation of a customs union, or an interim
agreement leading to the formation of a customs
union, to provide compensatory adjustment to its
constituents.
7. (a) Any contracting party deciding to enter into a customs union or
free-trade area, or an interim agreement leading to the formation of
such a union or area, shall promptly notify the CONTRACTING
PARTIES and shall make available to them such information
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regarding the proposed union or area as will enable them to make
such reports and recommendations to contracting parties as they may
deem appropriate.
(b) If, after having studied the plan and schedule included in an
interim agreement referred to in paragraph 5 in consultation with the
parties to that agreement and taking due account of the information
made available in accordance with the provisions of sub-paragraph
(a), the CONTRACTING PARTIES find that such agreement is not
likely to result in the formation of a customs union or of a free-trade
area within the period contemplated by the parties to the agreement
or that such period is not a reasonable one, the CONTRACTING
PARTIES shall make recommendations to the parties to the
agreement. The parties shall not maintain or put into force, as the
case may be, such agreement if they are not prepared to modify it in
accordance with these recommendations.
(c) Any substantial change in the plan or schedule referred to in
paragraph 5 (c) shall be communicated to the CONTRACTING
PARTIES, which may request the contracting parties concerned to
consult with them if the change seems likely to jeopardize or delay
unduly the formation of the customs union or of the free-trade area.
8. For the purposes of this Agreement:
(a) A customs union shall be understood to mean the substitution of a
single customs territory for two or more customs territories, so that
(i) duties and other restrictive regulations of commerce (except,
where necessary, those permitted under Articles XI, XII, XIII, XIV,
XV and XX) are eliminated with respect to substantially all the trade
between the constituent territories of the union or at least with
respect to substantially all the trade in products originating in such
territories, and,
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(ii) subject to the provisions of paragraph 9, substantially the same
duties and other regulations of commerce are applied by each of the
members of the union to the trade of territories not included in the
union;
(b) A free-trade area shall be understood to mean a group of two or
more customs territories in which the duties and other restrictive
regulations of commerce (except, where necessary, those permitted
under ArticlesXI, XII, XIII, XIV, XV and XX) are eliminated on
substantially all the trade between the constituent territories in
products originating in such territories.
9. The preferences referred to in paragraph 2 of Article I shall not be
affected by the formation of a customs union or of a free-trade area
but may be eliminated or adjusted by means of negotiations with
contracting parties affected. * This procedure of negotiations with
affected contracting parties shall, in particular, apply to the
elimination of preferences required to conform with the provisions of
paragraph 8 (a)(i) and paragraph 8 (b).
10. The CONTRACTING PARTIES may by a two-thirds majority
approve proposals which do not fully comply with the requirements
of paragraphs 5 to 9 inclusive, provided that such proposals lead to
the formation of a customs union or a free-trade area in the sense of
this Article.
GATS Article V
Economic Integration
1. This Agreement shall not prevent any of its Members from being a
party to or entering into an agreement liberalizing trade in services
between or among the parties to such an agreement, provided that
such an agreement:
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(a) has substantial sectoral coverage, and
-This condition is understood in terms of number of sectors,
volume of trade affected and modes of
supply. In order to meet this condition, agreements should
not provide for the a priori exclusion of
any mode of supply.
(b) provides for the absence or elimination of substantially all
discrimination, in the sense of Article XVII, between or among the
parties, in the sectors covered under subparagraph (a), through:
(i) elimination of existing discriminatory measures, and/or
(ii) prohibition of new or more discriminatory measures, either at
the entry into force of that agreement or on the basis of a reasonable
time-frame, except for measures permitted under Articles XI, XII,
XIV and XIV bis.
2. In evaluating whether the conditions under paragraph 1(b) are met,
consideration may be given to the relationship of the agreement to a
wider process of economic integration or trade liberalization among
the countries concerned.
3. (a) Where developing countries are parties to an agreement of the
type referred to in paragraph 1, flexibility shall be provided for
regarding the conditions set out in paragraph 1, particularly with
reference to subparagraph (b) thereof, in accordance with the level of
development of the countries concerned, both overall and in
individual sectors and subsectors.
(b) Notwithstanding paragraph 6, in the case of an agreement of the
type referred to in paragraph 1 involving only developing countries,
more favourable treatment may be granted to juridical persons
owned or controlled by natural persons of the parties to such an
agreement.
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4. Any agreement referred to in paragraph 1 shall be designed to
facilitate trade between the parties to the agreement and shall not in
respect of anyMember outside the agreement raise the overall level
of barriers to trade in services within the respective sectors or
subsectors compared to the level applicable prior to such an
agreement.
5. If, in the conclusion, enlargement or any significant modification
of any agreement under paragraph 1, a Member intends to withdraw
or modify a specific commitment inconsistently with the terms and
conditions set out in its Schedule, it shall provide at least 90 days
advance notice of such modification or withdrawal and the procedure
set forth in paragraphs 2, 3 and 4 of Article XXI shall apply.
6. A service supplier of any other Member that is a juridical person
constituted under the laws of a party to an agreement referred to in
paragraph 1 shall be entitled to treatment granted under such
agreement, provided that it engages in substantive business
operations in the territory of the parties to such agreement.
7. (a) Members which are parties to any agreement referred to in
paragraph 1 shall promptly notify any such agreement and any
enlargement or any significant modification of that agreement to the
Council for Trade in Services. They shall also make available to the
Council such relevant information as may be requested by it. The
Council may establish a working party to examine such an
agreement or enlargement or modification of that agreement and to
report to the Council on its consistency with this Article.
(b) Members which are parties to any agreement referred to in
paragraph 1 which is implemented on the basis of a time-frame shall
report periodically to the Council for Trade in Services on its
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implementation. The Council may establish a working party to
examine such reports if it deems such a working party necessary.
(c) Based on the reports of the working parties referred to in
subparagraphs (a) and (b), the Council may make recommendations
to the parties as it deems appropriate.
8. A Member which is a party to any agreement referred to in
paragraph 1 may not seek compensation for trade benefits that may
accrue to any other Member from such agreement.
Labour Markets Integration Agreements
This Agreement shall not prevent any of its Members from being a
party to an agreement establishing full integration of the labour
markets between or among the parties to such an agreement,
provided that such an agreement:
(a) exempts citizens of parties to the agreement from requirements
concerning residency and work permits;
(b) is notified to the Council for Trade in Services.
Full integration - typically, such integration provides citizens of
the parties concerned with a right of free entry to the employment
markets of the parties and includes measures concerning conditions
of pay, other conditions of employment and social benefits.
Tokyo Enabling Clause
Contracting parties may accord differential and more favourable
treatment to developing countries, without according such treatment
to other contracting parties. Applies to the ff.:
o Preferential tariff treatment accorded by developed
contracting parties to products originating in
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developing countries;
o Non-tariff measures governed by provisions of instruments
multilaterally negotiated under the
auspices of GATT;
o Regional or global arrangements entered into amongst
less-developed contracting parties for the
mutual reduction or elimination of tariffs;
o Special treatment on the least developed among the
developing countries in the context of any
general or specific measures in favour of developing
countries.
The developed countries do not expect the developing countries, in
the course of trade negotiations, to make contributions which are
inconsistent with their individual development, financial, and trade
needs.
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II. Introduction to the Regional Economic Integration
(History of ASEAN)
Bangkok Declaration (1967)
The Asean Declaration (Bangkok Declaration) Bangkok, 8 August
1967
- The Presidium Minister for Political Affairs/ Minister for Foreign
Affairs of Indonesia,
- the Deputy Prime Minister of Malaysia,
- the Secretary of Foreign Affairs of the Philippines,
- the Minister for Foreign Affairs of Singapore and
- the Minister of Foreign Affairs of Thailand:
MINDFUL of the existence of mutual interests and common
problems
among countries of South-East Asia and
- convinced of the need to strengthen further
the existing bonds of regional solidarity and cooperation;
DESIRING to
- establish a firm foundation for common action
to promote regional cooperation in South-East Asia
in the spirit of equality and partnership and
- thereby contribute towards peace, progress and prosperity in the
region;
CONSCIOUS that in an increasingly interdependent world,
the cherished ideals of peace, freedom, social justice and economic
well-being are best attained by fostering
- good understanding,
- good neighbourliness and
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- meaningful cooperation among the countries of the region already
bound together by ties of history and culture;
CONSIDERING
that the countries of SouthEast Asia share a primary responsibility
for -
- strengthening the economic and social stability of the region and
- ensuring their peaceful and progressive national development, and
that they are determined to ensure their stability and security
- from external interference in any form or manifestation
- in order to preserve their national identities
- in accordance with the ideals and aspirations of their peoples;
AFFIRMING that all foreign bases
- are temporary and remain only with the expressed concurrence of
the countries concerned and
- are not intended to be used directly or indirectly to
subvert the national independence and freedom of States in the area
or
prejudice the orderly processes of their national development;
DO HEREBY DECLARE:
FIRST, the establishment of an Association for Regional
Cooperation among the countries of South-East Asia to be known as
the Association of South-East Asian Nations (ASEAN).
SECOND, that the aims and purposes of the Association shall be:
1. To COLLABORATE more effectively for
the greater utilization of their agriculture and industries,
the expansion of their trade,
- including the study of the problems of international commodity
trade,
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the improvement of their transportation and communications
facilities and
the raising of the living standards of their peoples;
2. To ACCELERATE
- the economic growth, social progress and cultural development in
the region
- through joint endeavours in the spirit of equality and partnership
- in order to strengthen the foundation for a prosperous and peaceful
community of South-East Asian Nations;
3. To
- MAINTAIN close and beneficial cooperation
with existing international and regional organizations
with similar aims and purposes, and
- explore all avenues for even closer cooperation among themselves.
4. To PROVIDE ASSISTANCE to each other in the form of training
and research facilities in the educational, professional, technical and
administrative spheres;
5. To PROMOTE
1. regional peace and stability through
abiding respect for justice and the rule of law in the relationship
among countries of the region and
adherence to the principles of the United Nations Charter;
2. active collaboration and mutual assistance on matters of common
interest in the economic, social, cultural, technical, scientific and
administrative fields;
3. South-East Asian studies
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THIRD, that to carry out these aims and purposes, the following
machinery shall be established:
(a) Annual Meeting of Foreign Ministers,
which shall be by rotation and referred to as ASEAN Ministerial
Meeting. Special Meetings of Foreign Ministers may be convened as
required.
(b) A Standing committee,
under the chairmanship of the Foreign Minister of the host country
or his representative and
having as its members the accredited Ambassadors of the other
member countries,
- to carry on the work of the Association in between Meetings of
Foreign Ministers.
(c) Ad-Hoc Committees and Permanent Committees of specialists
and officials on specific subjects.
(d) A National Secretariat in each member country
- to carry out the work of the Association on behalf of that country
and
-to service the Annual or Special Meetings of Foreign Ministers, the
Standing Committee and such other committees as may hereafter be
established.
FOURTH, that the Association is open for participation to all States
in the South-East Asian Region subscribing to the aforementioned
aims, principles and purposes.
FIFTH, that the Association represents the collective will of the
nations of South-East Asia to
- bind themselves together in friendship and cooperation and,
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- through joint efforts and sacrifices, secure for their peoples and for
posterity the blessings of peace, freedom and prosperity.
DONE in Bangkok on the August 8, 1967.
Agreement on the Common Effective Preferential
Tariff Scheme for the ASEAN Free Trade Area
(1992)
Note: This section was partly lifted from Vada Rodriguez ASEAN I
Reviewer.
Color Coding: Amendments and Removed by Amendments
Article I: Definitions
1. CEPT - an agreed effective tariff - preferential to ASEAN
- to be applied to goods originating from ASEAN
Member States and
- which have been identified for inclusion in the
CEPT Scheme - in accordance with Articles 2(5) and
3
2. Non-Tariff Barriers - measures other than tariffs
- which effectively prohibit or restrict import or export products
- within Member States
3. Quantitative Restrictions
1. Prohibitions or restrictions on trade
2. with other Member States
- whether made effective through (1) quotas (2) Licenses,
(3) other measures with equivalent effect including
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administrative measures and requirements which restrict
trade.
4. Foreign Exchange Restrictions
- measures taken by Member States
- in the form of (1) restrictions and (2) other administrative
procedures in foreign exchange
- which have the effect of restricting trade
5. Preferential Trading Arrangements
- Stipulated (1) in the Agreement on ASEAN PTA signed in
Manila on 24 February 1977, and (2) in the Protocol on
Improvements on Extension of Tariff Preferences under the
ASEAN Preferential Trading Arrangement
6. Exclusion List
- list containing products that are excluded
- from the extension of tariff preferences under the CEPT
Scheme
7. Agricultural Products
1. a. agricultural raw materials/unprocessed products
- covered under Chapters 1-24 of the Harmonised
System (HS), and
b. similar agricultural raw materials/unprocessed products
- in other related HS Headings; and
2. products which have undergone simple processing with
minimal change in form from the original products
Article II: General Provisions
1. All Member States shall participate in the CEPT Scheme.
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2. Identification of products to be included in the CEPT
Scheme shall be on a sectoral basis, i.e., at HS 6-digit level.
3. Exclusions at the HS 8/9 digit level for specific products are
permitted for those Member States, which are temporarily not
ready to include such products in the CEPT Scheme.
For specific products,
- which are sensitive to a Member State,
- pursuant to Article 1 (3) of the Framework Agreement on
Enhancing ASEAN Economic Cooperation,
a Member State may exclude products from the CEPT
Scheme,
subject to a waiver of any concession herein provided
for such products.
These temporarily excluded products are to be gradually included
into the CEPT by 1 January 2000.
4. A product shall be deemed to be originating from ASEAN
Member States, if at least 40% of its content originates from
any Member State.
5. All manufactured products, including (1) capital goods, (2)
processed agricultural products and those products falling outside
the definition of agricultural products, as set out in this Agreement,
shall be in the CEPT Scheme
- These products shall automatically be subject to the schedule of
tariff reduction, as set out in Article 4 of this Agreement. [as revised
in Article 3 of this Protocol]
- In respect of PTA items, the schedule of tariff reduction
provided for in [the revised] Article 4[(A) set out in Article 3 of
this Protocol] of this Agreement shall be applied, taking into
account the tariff rate after the application of the existing margin
of preference (MOP) as at 3 1 December 1992.
6. All products under the PTA which are not transferred to the
CEPT Scheme [in the list for tariff reductions of the CEPT
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scheme] shall continue to enjoy the MOP existing as at 31
December 1992.
7. Member States, whose (1) tariffs for the agreed products are
reduced from 20% and below to 0%-5%, (2) even though
granted on an MFN basis, shall still enjoy concessions.
Member States with tariff rates at MFN rates of 0%-5%
shall be deemed to have (1) satisfied the obligations under this
Agreement and
shall also (2) enjoy the concessions.
Article III: Product Coverage
This(1)
Agreement shall apply
all manufactured to
products, including
(a) capital goods, and
(b) processed agricultural products, and
- those products falling outside the definition of agricultural
products as set out in this Agreement.
Agricultural products shall be excluded from the CEPT Scheme
Article IV: Schedule of Tariff Reduction
A. Schedule of Tariff Reduction
1. Member States agree to the following schedule of effective
preferential tariff reductions:
(a) The reduction from existing tariff rates to 20% shall be done
within a time frame of 5 years to 8 years, from 1 January 1993,
subject to a programme of reduction to be decided by
each Member State,
which shall be announced at the start of the
programme. Member States are encouraged to
adopt an annual rate of reduction,
- which shall be (X-20)%/5 or 8,
- where X equals the existing tariff rates of individual Member
States.
(b) The subsequent reduction of tariff rates from 20% or below
shall be done within a time frame of 7 [5] years.
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- The rate of reduction shall be at a minimum of 5%
quantum per reduction.
- A programme of reduction to be decided by each Member
State shall be announced at the start of the programme.
(c) For products with existing tariff rates of 20% or below as at 1
January 1993,
Member States shall
- decide upon a programme of tariff reductions, and
- announce at the start, the schedule of tariff
reductions.
Two or more Member States may enter into
arrangements for tariff reduction to 0%-5% on
specific products at an accelerated pace to be
announced at the start of the programme. [The
above schedules of tariff reduction shall not
prevent Member States from immediately
reducing their tariffs from 0%-5% or following
an accelerated schedule of tariff reduction]
B. Enjoyment of Concessions
2. Subject to Articles 4 (1) (b) and 4 (1) (c) of this Agreement,
products which reach, or are at tariff rates of 20% or below,
shall automatically enjoy the concessions.
3. The above schedules of tariff reduction shall not prevent
Member States from
- immediately reducing their tariffs to 0%-5% or
- following an accelerated schedule of tariff reduction.
[2003 AMENDMENT!]
C. Elimination of Import Duties
1. Import duties on products in the
Inclusion Lists of Brunei Darussalam,
Indonesia, Malaysia, Philippines,
Singapore and Thailand shall be eliminated
not later than 1 January 2010.
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2. Import duties on products in the
Inclusion Lists of Cambodia, Lao PDR,
Myanmar and
Viet Nam shall be eliminated not later than
1 January 2015, with flexibility however
allowed for import duties on some
sensitive products to be eliminated not later
than 1
January 2018.
3. The provisions of Articles 4(C)(1) and
4(C)(2) of the Agreement shall not apply to
the list of products of Member States
contained in Annexes 1 and 2 of the
Protocol on the
Special Arrangement for Sensitive and
Highly Sensitive Products.
The tariff reduction schedule for these products
shall be governed by Article III of the Protocol
on the Special Arrangement for Sensitive and
Highly Sensitive Products.
Article V: Other Provisions
A. Quantitative Restrictions and Non-Tariff Barriers
1. Member States shall eliminate all quantitative restrictions (1)
in respect of products (2) under the CEPT Scheme (3) upon
enjoyment of the concessions (4) applicable to those products.
2. Member States shall eliminate other non-tariff barriers (1) on
a gradual basis (2) within a period of five years (3) after the
enjoyment of concessions (4) applicable to those products.
B. Foreign Exchange Restrictions
Member States shall make exceptions to their foreign exchange
restrictions relating to
- payments for the products under the CEPT Scheme, as well as
Alba, Albana, Banta, Borja, Co, Fajardo, Gaw, Grupo, Mamuric, Narciso, Tan, Rodriguez
- repatriation of such payments
- without prejudice to their rights under
- Article XVIII of the General Agreement on Tariff and Trade
(GATT) and
- relevant provisions of the Articles of Agreement of the
International Monetary Fund (IMF).
C. Other Areas of Cooperation
Member States shall explore further measures on border and non-
border areas of cooperation to supplement and complement the
liberalisation of trade.
These may include, among others,
- the harmonisation of standards,
- reciprocal recognition of tests and certification of products,
- removal of barriers to foreign investments,
- macroeconomic consultations,
- rules for fair competition, and
- promotion of venture
capital.
D. Maintenance of Concessions
Member States shall not nullify or impair (1) any of the concessions
as agreed upon through the application of methods of customs
valuation, (2) any new charges or measures restricting trade, except
in cases provided for in this Agreement.
Article VI: Emergency Measures
1. If as a result of the implementation of this Agreement, import of a
particular product eligible under the CEPT Scheme is increasing in
such a manner as to (1) cause or threaten to cause serious injury to
sectors producing like or (2) directly competitive products in the
importing Member States, the importing Member States may, to the
extent and for such time as may be necessary to prevent or to remedy
such injury, (a) suspend preferences (b) provisionally and (c) without
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
discrimination, subject to Article 6 (3) of this Agreement. Such
suspension of preferences shall be consistent with the GATT.
2. Without prejudice to existing international obligations, a
Member State, which finds it necessary to create or intensify
(a) quantitative restrictions or (b) other measures limiting
imports with a view to (1) forestalling the threat of or (2)
stopping a serious decline of its monetary reserves, shall
endeavour to do so in a manner, which safeguards the value
of the concessions agreed upon.
3. Where emergency measures are taken pursuant to this
Article,
(1) immediate notice of such action shall be given to the Council
referred to in Article 7 of this Agreement, and (2) such
action may be the subject of consultation as provided for in
Article 8 of this Agreement.
Article VII: Institutional Arrangements
1. The ASEAN Economic Ministers (AEM) shall, for the purposes
of this Agreement, establish a ministerial-level Council comprising
(1) one nominee from each Member State and (2) the Secretary-
General of the ASEAN Secretariat.
The ASEAN Secretariat shall provide the support to the ministerial-
level Council for (1) supervising, coordinating and reviewing the
implementation of this Agreement, and (2) assisting the AEM in all
matters relating thereto.
In the performance of its functions, the ministerial-level Council shall
also be supported by the Senior Economic Officials Meeting (SEOM).
2. Member States which enter into bilateral arrangements on
tariff reductions pursuant to Article 4 of this Agreement shall
notify all other Member States and the ASEAN Secretariat of
such arrangements.
Alba, Albana, Banta, Borja, Co, Fajardo, Gaw, Grupo, Mamuric, Narciso, Tan, Rodriguez
3. The ASEAN Secretariat shall monitor and report to the
SEOM on the implementation of the
Agreement pursuant to the Article III (2) (8) of the
Agreement on the Establishment of the ASEAN
Secretariat.Member States shall cooperate with the
ASEAN Secretariat in the performance of its
duties.
Article VIII: Consultations
1. Member States shall accord adequate opportunity
for consultations regarding any representations made
by other Member States with respect to any matter
affecting the implementation of this Agreement. The
Council referred to in Article 7 of this Agreement,
may seek guidance from the AEM in respect of any
matter for which it has not been possible to find a
satisfactory solution during previous consultations.
2. Member States, which consider that any other Member State
has not carried out its obligations under this Agreement, resulting in
the nullifications or impairment of any benefit accruing to them,
may, with a view to achieving satisfactory adjustment of the
matter, make representations or proposal to the other Member
States concerned, which shall give due consideration to the
representations or proposal made to it.
3. Any differences between the Member States concerning the
interpretation or application o f this Agreement shall, as far as
possible, be settled amicably between the parties. If such
differences cannot be settled amicably, it shall be submitted to
the Council referred to in Article 7 of this Agreement, and if
necessary, to the AEM.
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
Article IX: General Exceptions
Nothing in this Agreement shall prevent any
Member State from taking action and adopting
measures, which it considers necessary for (1) the
protection of its national security, (2) the
protection of public morals, (3) the protection of
human, animal or plant life and health, and (4)
the protection of articles of artistic, historic and
archaeological value.
Article IX-A: Accession of New Members
New Members of ASEAN shall accede to this
Agreement on terms and conditions,
which are (1) consistent with the Framework
Agreement on Enhancing ASEAN Economic
Cooperation (1992) and the Agreement, and
which have been (2) agreed between them
and the existing Members of ASEAN.
Article X: Final Provisions
1. The respective Governments of Member States shall
undertake the appropriate measures to fulfil the agreed
obligations arising from this Agreement.
2. Any amendment to this Agreement shall be made by
consensus and shall become effective upon acceptance by all
Member States.
3. This Agreement shall be effective upon signing.
4. This Agreement shall be deposited with the Secretary-
General of the ASEAN Secretariat, who shall likewise promptly
furnish a certified copy thereof to each Member State.
5. No reservation shall be made with respect to any of the
provisions of this Agreement. In witness Whereof, the
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undersigned, being duly authorised thereto by their respective
Governments, have signed this Agreement on Common
Effective Preferential Tariff (CEPT) Scheme for the Free Trade
Area (AFTA).
This Protocol (1) shall enter into force upon the deposit of
instruments of ratification or acceptance
(2) by all signatory governments with the Secretary-General of
ASEAN (3) which shall be done not later than 1 January 1996 (4)
shall be deposited with the Secretary-General of ASEAN (5) who
shall promptly furnish a certified copy thereof to each Member
Country.
India v. Turkey, Restrictions on Imports of
Textile and Clothing Products
Claimant: India
Respondent: Turkey
Third Participants, if any: Hong Kong, China; Japan; Philippines;
Thailand; United States
Measure: import quota restrictions against India on a broad range of
textiles and clothing products
INVOLVED GATT PROVISIONS (as listed by professors in
class):
GATT Art. XI Prohibition on Quantitative Restrictions (QR)
o No prohibitions or restrictions other than duties, taxes or other
charges, whether made effective through quotas, import or export
licences or other measures, shall be instituted or maintained by any
Member on the importation of any product of the territory of any
other Member or on the exportation or sale for export of any product
destined for the territory of any other Member.
GATT Art. XIII Non-discriminatory administration of QRs
No prohibition or restriction shall be applied by any Member
on the importation of any product of the territory of any
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other Member or on the exportation of any product destined
for the territory of any other Member, unless the importation
of the like product of all third countries or the exportation of
the like product to all third countries is similarly prohibited
or restricted.
GATT Art. XXIV Regional Trade Agreements, Custom Unions,
& Free Trade Agreements
o Particularly: CHAPEAU of Art. XXIV, par. 5 (24) Accordingly,
the provisions of this Agreement shall NOT prevent, as between the
territories of contracting parties, the formation of a customs union,
PROVIDED, that
a. with respect to a customs union, or an interim agreement
leading to a formation of a customs union, the duties and
other regulations of commerce imposed at the institution of
any such union or interim agreement in respect of trade with
contracting parties not parties to such union or agreement
shall not on the whole be higher or more restrictive than the
general incidence of the duties and regulations of commerce
applicable in the constituent territories prior to the formation
of such union or the adoption of such interim agreement, as
the case may be;
b. with respect to a free-trade area, or an interim agreement
leading to the formation of a freetrade area, the duties and
other regulations of commerce maintained in each of the
constituent territories and applicable at the formation of such
free-trade area or the adoption of such interim agreement to
the trade of contracting parties not included in such area or
not parties to such agreement shall not be higher or more
restrictive than the corresponding duties and other
regulations of commerce existing in the same constituent
territories prior to the formation of the free-trade area, or
interim agreement as the case may be; and
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c. any interim agreement referred to in subparagraphs (a) and
(b) shall include a plan and schedule for the formation of
such a customs union or of such a free-trade area within a
reasonable length of time.
ATC Art. 2.4 Prohibition on New Restrictions
PRELIMINARY FACTS:
Turkey, upon joining the EC customs union, unilaterally imposed
import quota restriction against India (country not party to the union)
on a broad range of textiles and clothing products.
On 21 March 1996, India requested consultations with Turkey
concerning Turkeys imposition of quantitative restrictions on
imports of a broad range of textile and clothing products. India
claimed that those measures are inconsistent with Articles XI and
XIII of GATT 1994, as well as ATC Article 2. Earlier, India had
requested to be joined in the consultations between Hong Kong and
Turkey on the same subject matter.
On 2 February 1998, India requested the establishment of a
panel. At its meeting on 13 February 1998, the DSB deferred the
establishment of a panel.
ARGUMENTS OF PARTIES:
1. INDIA
GATT Art. XI & XIII
India submitted that Article XI:1 of GATT constituted a
general prohibition on the imposition of QRs on imports.
The QRs imposed by Turkey on imports of textiles and
clothing were clearly inconsistent with this general
prohibition and were not saved by any of the exceptions to
this provision contained in GATT.
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India submitted further that, to the extent that Turkeys QRs
were discriminatory in nature, they were also inconsistent
with the prohibition on discriminatory QRs in Article XIII:1
of GATT.
Art. XXIV of GATT
India submitted that what was at issue in the present dispute was
not whether the Turkey-EC customs union met the requirements of
Article XXIV:5(a) but whether this provision provided an
authorisation to impose, on the occasion of the formation of a
customs union, new barriers to the trade of third Members
inconsistently with Article XI:1 of GATT and Article 2.4 of the ATC
on the grounds that other barriers to imports had been voluntarily
reduced. India's claim was that WTO Members forming a customs
union, irrespective of whether their union met the requirements set
out in Article XXIV or not, had to abide by the disciplines of Article
XI:1 of GATT and Article 2.4 of the ATC with respect to the trade of
third Members. The question of whether the Turkey-EC customs
union was consistent with the requirements of Article XXIV
therefore did not arise in this dispute. India was seeking a ruling on
an obvious legal point on which there had so far been agreement
among WTO Members, including the European Communities,
Turkey's partner in the envisaged customs union.
Art. 2.4 of ATC
India submitted that Article 2 of the ATC permitted WTO
Members to continue to apply, during the transition period provided
for, restrictions on textile and clothing products that were in force on
the day before the entry into force of the Agreement (i.e. 31
December 1994) under the MFA. According to Article 2.1 of the
ATC, such restrictions were to be notified in detail to the WTO by
the Members maintaining them within 60 days following the entry
into force of the WTO Agreement. As stated in Article 2.4 of the
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ATC, the restrictions so notified were "deemed to constitute the
totality of such restrictions applied by the respective Members on the
day before the entry into force" of the ATC. Turkey had not
maintained restrictions on imports of textile and clothing products
from India on 31 December 1994. The restrictions on textiles and
clothing products from India were imposed by Turkey on 1 January
1996 and were consequently not in force on the day before the entry
into force of the WTO Agreement.
2. TURKEY
Art. XXIV of GATT
Turkey claims that the restrictions it applies on imports
categories of certain textile and clothing products from India are
justified under Article XXIV of GATT, as these measures were
adopted pursuant to (and on the occasion of the formation of) its
customs union with the European Communities.
Turkey considers that Article XXIV of GATT recognizes that
WTO Members have a right to form customs unions and that this
right provides such a regional trade agreement with a "shield" from
all other WTO obligations. In the context of invoking Article XXIV
of GATT, Turkey argues that its customs union with the European
Communities is consistent with Article XXIV in that 1) the new
regime is overall less restrictive than its previous one, 2) the
restrictions challenged by India are of a temporary nature, 3) the
customs union has liberalized Turkeys trade with third countries,
and 4) the customs union will be deepened further including in the
area of trade legislation. In particular with reference to import
restrictions, Turkey argues that 1) Article XXIV:5 provides a
derogation from other GATT provisions in the case of the formation
of a customs union, and 2) GATT does not prohibit all new
restrictions which may be required by customs unions.
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In addition, Turkey argues 1) that these measures constitute a
"requirement" (by the European Communities and also of Article
XXIV); that it adopt the European Communities common
commercial policy, including the arrangements relating to trade in
textiles and clothing; 2) that there is no GATT-consistent alternative
to these restrictions if it wants to include textile and clothing
products (which constitute 40% of Turkey's exports to the European
Communities) in the customs union; and 3) that in this context, the
WTO Agreement makes no distinction between the formation of a
new customs union and accession to an existing customs union.
ATC Art. 2.4 (Prohibition on New Restrictions)
Turkey argues that, since it has formed a customs union with the
European Communities which, under the ATC, is entitled to
maintain import restrictions on the same 19 categories of textiles and
clothing, Turkey's parallel import restrictions are not new restrictions
in the sense of Article 2.4 of the ATC, being justified by Article
XXIV. For Turkey, the said measures are therefore not inconsistent
with Article 2 of the ATC. Finally, in its second submission, Turkey
claims that India has not suffered any nullification of benefits, as its
exports to Turkey have generally increased since the entry into force
of the customs union.
THIRD PARTY CLAIMS:
1. HONG KONG
Summary of HKs claims: Hong Kong, China claims that Turkeys
measures were inconsistent with Article 2.4 of the ATC (Article XI
of GATT was violated ipso facto) and Article XIII of GATT, and
that they were not justified by Article XXIV of GATT.
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HKs Arguments:
Turkeys measures constituted an infringement of the WTO
Agreement. Specifically, the GATT did not provide carte blanche for
a customs union to introduce discriminatory QRs.
HK submitted that Turkeys measures were in violation of Article
2.4 of the ATC. It viewed Article 2 of the ATC and Article XI of
GATT as both dealing with QRs, the former specifically about QRs
in the textiles and clothing sector, and the latter about QRs in the
goods field. Since the former was lex specialis to the latter, any time
Article 2.4 of the ATC was violated, Article XI of GATT was
violated ipso facto (but not vice versa).
Turkeys measures were inconsistent with Article XIII of GATT.
Non-discrimination was a fundamental principle of the WTO. Since
the measures applied only to selected Members and textile and
clothing products from many other Members were not subject to the
same measures, Turkey was obviously in breach of the principles of
non- discrimination under Article XIII of GATT.
Article XXIV only set out the obligations to be fulfilled when
customs territories of the constituent parties formed a customs union.
It did not enable or provide justifications for any Member to
establish or extend discriminatory QRs against selected third parties.
In light of Article 31 of the VCLT, the specific object and purpose of
GATT was set out in its preamble as "entering into reciprocal and
mutually advantageous arrangements directed to the substantial
reduction of tariffs and other barriers to trade and to the elimination
of discriminatory treatment in international commerce".
It did not consider that Article XXIV:5 went so far as to provide
a waiver from other provisions of the GATT. It also questioned
whether an overall reduction of barriers could legally justify GATT-
inconsistent measures.
Article XXIV:8 was a definition clause. In itself it created neither
rights nor obligations.
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Article XXIV of GATT did not necessarily require a constituent
territory to align every aspect of its external trade regime with that of
the other constituent territory, especially if the regime of the latter
was more restrictive and discriminatory.
2. JAPAN
Summary of Japans claims: Turkeys QRs were inconsistent with
Turkeys obligation under Article XI of GATT and Article 2.4 of the
ATC, unless Turkey demonstrated that it fulfilled the conditions for
invoking Article XXIV of GATT.
Japans Arguments:
Being a country which was not a party to any RTA and was
greatly benefiting from the multilateral trading system, it had a great
interest in ensuring that RTAs were consistent with the WTO
Agreement and that such agreements did not lead to forming trade
blocs.
RTAs were governed by Article XXIV of GATT, but the parties
to RTAs, as WTO Members, should also abide by the MFN principle
and other provisions of the WTO Agreement. Article XXIV had to
be interpreted in good faith, in the context of and in the light of the
object and purpose of the WTO Agreement as a whole, and with due
consideration given to its overall spirit and basic principles.
the requirement contained in Article XXIV:8(a)(ii) of GATT, that
a member of a customs union apply "substantially" the same duties
and other regulations of commerce vis--vis third parties, did not
mean that "exactly" the same regulations of commerce were
necessarily to be applied.
Article XXIV:8(a)(ii) did not call for the parties to take any
measures inconsistent with other provisions of the WTO Agreement
in order to apply "substantially the same duties and other regulations
of commerce" and could thus not be invoked as a "relevant GATT
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1994 provision" under which "new restrictions" could be
exceptionally introduced, as provided in Article 2.4 of the ATC.
it was important to interpret provisions in Article XXIV:5 of
GATT in the light of the purpose of a customs union or of a free-
trade area, as contained in Article XXIV:4.
individual regulations of Turkey needed to be examined in order
to verify that they did not constitute more restrictive measures vis--
vis third countries. In this context, the introduction of GATT-
inconsistent measures (in this case, those inconsistent with Article XI
of GATT and Article 2.4 of the ATC) should be first presumed as
"more restrictive" in the sense of Article XXIV:5 of GATT.
3. US
Summary of US claims: The Panel should decide this dispute
despite Turkeys claim that it could not do so. The Panel should also
not to accept the various justifications that Turkey had advanced for
the QRs that India had challenged. In particular, Article XXIV of
GATT should not be read to permit Members to introduce QRs that
were not consistent with their obligations under the WTO
Agreement.
US Arguments:
Turkey had asserted no substantive defense under the ATC or
Article XI of GATT for the QRs at issue in this dispute. The only
legal basis that Turkey claimed was that measures were deemed to be
justified under Article XXIV of GATTto which US disagrees.
In light of Article XXIV, the provisions of Article I:1 did not
require the constituent members of the customs union (or free-trade
area) to offer such elimination of duties and restrictive regulations of
commerce to non-originating goods. Turkey went on to suggest that
all the provisions of GATT were overridden by Article XXIV, and at
this point the US disagreed with Turkey.
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
The object and purpose of Article XXIV were authoritatively
given in Article XXIV:4. In light of the second sentence of that
provision, it was difficult to see how Turkeys action in this case was
justifiable. In fact, the GATT generally prohibited QRs entirely, as
an especially serious barrier to trade. Therefore, it was hard to see
how a customs union could introduce new QRs consistently with
Article XXIV:4, unless some other provision of the WTO Agreement
independently justified those restrictions.
Article XXIV:8 did not require or authorize the customs union to
adopt any particular set of such external regulations. Most
importantly, Article XXIV:8(a)(ii) nowhere provided that the
external regulations that the customs union chose to apply could be
inconsistent with WTO requirements.
the EC and Turkey could have chosen to implement a certificate
of origin system to ensure that goods entering the European
Communities from Turkey were in fact of Turkish origin. Had the
EC and Turkey taken either of these approaches, they could still have
continued to apply the same regulations of commerce externally.
And, they would not have raised the trade barriers that Turkey had
with its new QRs. Because these alternatives were open to them,
Turkey could not claim that the provisions of the WTO Agreement
(and the provisions of the ATC) were preventing the formation of a
customs union with the EC. Hence, Turkey was incorrect in claiming
that Article XXIV:5 and 8(a) authorized these measures.
evaluation under Article XXIV of the level of trade barriers went
beyond an evaluation of tariffs, and therefore Turkeys statement
was not correct.
the argument was that contracting parties that reduced duties in
forming a customs union were entitled to compensation for that
reduction. Paragraph 6 of the Understanding on Article XXIV
expressly eliminated that argument, however. Turkeys claim in this
case that the agreement had not raised barriers to trade was just
another version of that old argument and should not be accepted.
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Procedurally, because Turkey has made the argument that its
QRs were a requirement of the customs union, therefore the Panel
could not rule on the legality of its QRs in the absence of agreed
conclusions on the consistency of the Turkey-EC customs union with
GATT. Turkey did not appear to have supplied any argument in
support of this request. The suggestion that this Panel could not rule
on the legality of Turkeys measures was inconsistent with the WTO
Agreement in several ways.
nothing in the text of GATT or any other part of the WTO
Agreement supported the notion that measures could be excluded
from dispute settlement merely because a Member made an
argument about the justification of a measure.
Turkeys argument that Indias supposed failure to engage in
meaningful consultations should deprive India of the right to pursue
this dispute was unfounded. Article 3.7 of the DSU made clear that
the dispute settlement mechanism was available in absence of a
mutually agreed solution. And, Article 4.7 of the DSU made it quite
clear that the complaining party was entitled to request a panel if the
dispute had not been settled within 60 days after the date of receipt
of the request for consultations.
the fact that no Member objected to the new restrictions did not
mean that either those restrictions or the ones challenged in this case
were consistent with the requirements of the WTO Agreement. In
any event, this Panel need not make any findings on the complex
issues relating to the extension of the WTO Agreement to the
territory of states that acceded to the European Communities.
4. PHILIPPINES
Summary of Philippines Arguments: The prima facie violation of
Articles XI and XIII of GATT and of Article 2.4 of the ATC was not
disputed by Turkey. The Philippines considered that Turkey's
defense was based on the argument that the territories of Turkey and
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
the European Communities formed one single customs union and
that the promulgation of the measure by Turkey was but part of the
process of harmonization under Article XXIV:8(a)(ii). In the
Philippines' view, even assuming that the Turkey-EC arrangement
qualified as a customs union under Article XXIV:8, the
promulgation of the measure and the imposition of the restrictions
were in violation of Article XXIV:4, in relation to the Understanding
on Article XXIV,208 since other less restrictive and less
discriminatory options were available to Turkey and the European
Communities to achieve such harmonization. Furthermore, such
promulgation and imposition were likewise in violation of Article
XXIV:5, in relation to the Understanding on Article XXIV, as the
general incidence of regulations of commerce applicable in the
constituent territories were on the whole more restrictive compared
to that prevailing prior to the formation of the alleged customs union.
Philippines Arguments:
The Philippines submitted that the promulgation and imposition
of the QRs established by Turkey as of 1 January 1996 on imports
into its territory of a broad range of textile and clothing products,
applicable only on imports of some Members, including India and
the Philippines, were prima facie violations of Articles XI:1 and
XIII:1 of GATT:
o The restrictions were in the nature of proscribed "prohibitions and
restrictions" in the sense of Article XI:1 of GATT;
o Turkey did not cite the existence of any of the situations specified
in Article XI:2 of GATT under which the prohibitions and
restrictions otherwise proscribed under Article XI:1 may be imposed;
neither did it attempt to establish that it had complied with any of the
conditions specified thereunder; and
o Turkey did not attempt to establish that the restrictions were
applicable to imports of textile and clothing products from all
Members, in accordance with provisions in Article XIII:1 of GATT;
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on the contrary, as part of its affirmative defense, it confirmed that
the restrictions were not applied against the importation of like
products from, at the very least, the EC Member States.
The Philippines considered that, since Turkey had no restrictions
in force as of 1 January 1995 and thus did not so notify under Article
2.1 of the ATC, Turkey's quantitative limitations on imports of
textile and clothing products were proscribed "new restrictions", for
purposes of Article 2.4 of the ATC.
The Philippines considered that, as a general rule, parties were
free to establish the conditions under which harmonization under
Article XXIV:8(a)(ii) was to be achieved. In this instance, Turkey
and the European Communities opted to impose the same restrictions
subsisting in the European Communities to achieve harmonization, at
least in respect of textile and clothing products. In the process of
harmonization, Turkey and the European Communities had opted for
the most restrictive and discriminatory option when other less
restrictive and discriminatory options were equally available.
The Philippines submitted that the arrangement between Turkey
and the European Communities did not qualify as a customs union
under Article XXIV:8(a)(i) because, among others, all restrictive
regulations of commerce had not been eliminated with respect to
substantially all the trade between Turkey and the European
Communities. Therefore, the promulgation of the measure by Turkey
and the imposition of the restrictions could not be justified because
the Turkey-EC arrangement had not resulted in the formation of a
customs union.
5. THAILAND
Summary of Thailands Arguments: Thailand submitted that the
imposition of the QRs by Turkey was inconsistent with its
obligations under the provisions of Article 2.4 of the ATC and under
the provisions of Article I:1, Article XI:1 and Article XIII:1 of
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GATT. Thailand submitted further that these inconsistencies could
not be justified by the provisions of Article XXIV:5(a) and/or Article
XXIV:8(a)(ii).
Thailands Arguments:
Thailand noted that the imposition of QRs by Turkey pursuant to
Decision 1/95 were new restrictions prohibited by Article 2.4.
Turkey's measures did not fall within the exception provisions of the
ATC to the prohibition of new restrictions, namely the "transitional
safeguard" (Article 6), since Turkey did deliberately not invoke this
mechanism for its justification.
GATT jurisprudence shows that is generally accepted, even by
the European Communities, that the provisions of Article XXIV
were not the exception to nor the justification or waiver for the
institution or maintenance of any form of QRs.
KEY PANEL AND APPELLATE BODY FINDINGS:
GATT Art. XI & XIII Prohibition on Quantitative Restrictions
(QR)
The prohibition on the use of QRs forms one of the
cornerstones of the GATT system. A basic principle of the GATT
system is that tariffs are the preferred and acceptable form of
protection. Tariffs, to be reduced through reciprocal concessions,
ought to be applied in a non-discriminatory manner independent of
the origin of the goods (the "most-favoured-nation" (MFN) clause).
The prohibition against quantitative restrictions is a
reflection that tariffs are GATT's border protection "of choice".
Quantitative restrictions impose absolute limits on imports, while
tariffs do not. In contrast to MFN tariffs which permit the most
efficient competitor to supply imports, quantitative restrictions
usually have a trade distorting effect, their allocation can be
problematic and their administration may not be transparent.
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The measures at issue, on their face, impose quantitative
restrictions on imports and are applicable only to India. Given the
absence of a defense by Turkey (other than its defense based on
Article XXIV of GATT) to India's claims that discriminatory import
restrictions have been imposed, India has made a prima facie case of
violation of Articles XI and XIII of GATT.
ATC Art. 2.4 (Prohibition on New Restrictions)
The Panel found that Turkey's measures were new
restrictions that did not exist at the time of the entry into force of the
ATC, and, thus, were prohibited by Art. 2.4.
Art. XXIV of the GATT (Regional Trade Agreements, Custom
Unions, & Free Trade Agreements)
The Appellate Body agreed with the Panel's ultimate
conclusion that Turkey's measures were not justified under Art.
XXIV because there were alternatives available to Turkey that
would have met the requirements of Art. XXIV:8(a), which were
necessary to form the customs union, other than the adoption of the
quantitative restrictions.
The Appellate Body, therefore, modified the Panel's legal
reasoning and concluded that to determine whether a measure found
inconsistent with certain other GATT provisions can be justified
under Art. XXIV, a panel should examine two conditions: (i)
whether a customs union, as defined in Art. XXIV: exists
(compatibility of a customs union with the provisions of Art. XXIV);
and (ii) whether the formation of a customs union would be
prevented without the inconsistent measure (i.e. whether the measure
is necessary for the formation of a customs union).
The Panel had assumed the existence of the customs union
and moved on to examine the necessity of the measure.
Burden of proof
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The Appellate Body agreed with the Panel that Art. XXIV
may be considered as a defence or exception to a violation.
The Panel also held that the burden of proof under Art.
XXIV was on the party invoking it.
Rules of Origin, based on the Appellate Body (Noted in Class as
Important)
Had Turkey not adopted the same quantitative restrictions
that are applied by the European Communities, this would not have
prevented Turkey and the European Communities from meeting the
requirements of sub-paragraph 8(a)(i) of Article XXIV, and
consequently from forming a customs union. The terms of sub-
paragraph 8(a)(i) offer some though limited flexibility to the
constituent members of a customs union when liberalizing their
internal trade. There are other alternatives available to Turkey and
the European Communities to prevent any possible diversion of
trade, while at the same time meeting the requirements of sub-
paragraph 8(a)(i). For example, Turkey could adopt rules of origin
for textile and clothing products that would allow the European
Communities to distinguish between those textile and clothing
products originating in Turkey, which would enjoy free access to the
European Communities under the terms of the customs union, and
those textile and clothing products originating in third countries,
including India. In fact, we note that Turkey and the European
Communities themselves appear to have recognized that rules of
origin could be applied to deal with any possible trade diversion.
Article 12(3) of Decision 1/95 of the EC-Turkey Association
Council, which sets out the rules for implementing the final phase of
the customs union between Turkey and the European Communities,
specifically provides for the possibility of applying a system of
certificates of origin.33 A system of certificates of origin would have
been a reasonable alternative until the quantitative restrictions
applied by the European Communities are required to be terminated
under the provisions of the ATC. Yet no use was made of this
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possibility to avoid trade diversion. Turkey preferred instead to
introduce the quantitative restrictions at issue.
IMPLEMENTATION OF ADOPTED REPORTS
At the DSB meeting of 19 November 1999, Turkey stated its
intention to comply with the recommendations and rulings of the
DSB. On 7 January 2000, the parties informed the DSB that they had
agreed that the reasonable period of time for Turkey to implement
the DSBs recommendations and rulings would expire on 19
February 2001. Pursuant to the agreement reached, Turkey also was
to refrain from making more restrictive restrictions affecting imports
of specified textile and clothing products from India, to increase the
size of the quotas of India on certain specified textile and clothing
products and to treat India no less favorably than any other Member
with respect to the elimination of or modification of quantitative
restrictions affecting any product covered by the agreement.
On 6 July 2001, the parties to the dispute notified the DSB that
they have reached a mutually acceptable solution regarding
implementation by Turkey of the conclusions and recommendations
adopted by the DSB on the matter. Pursuant to the Agreement,
Turkey agreed to:
remove the quantitative restrictions it applies on
textile categories 24 and 27 in respect of imports
from India, by 30 June 2001 or the date of signature
of the Agreement;
carry out tariff reductions on the applied rate basis as
described in annex to the Agreement, by 30
September 2001;
strive towards early compliance with the
recommendations and rulings of the DSB.
Pursuant to the Agreement, the compensation would remain
effective until Turkey removes all quantitative restrictions applied as
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of 1 January 1996 in respect of imports from India for the 19 III. ASEAN Legal Framework
categories of textile and clothing products.
At the meeting of the DSB on 18 December 2001, India made a ASEAN Charter
statement concerning the lack of notification by Turkey of tariff
reductions carried out as part of the implementation process. WE, THE PEOPLES of the Member States of the Association of
Southeast
Asian Nations (ASEAN), as represented by the
-Heads of State or Government of Brunei Darussalam,
-the Kingdom of Cambodia,
-the Republic of Indonesia,
-the Lao Peoples Democratic Republic,
-Malaysia,
-the Union of Myanmar,
-the Republic of the Philippines,
-the Republic of Singapore,
- the Kingdom of Thailand and
-the Socialist Republic of Viet Nam:

NOTING with satisfaction the significant achievements and

expansion of ASEAN since its establishment in Bangkok through the
promulgation of The ASEAN Declaration;

RECALLING the decisions to establish an ASEAN Charter in the

Vientiane Action Programme, the Kuala Lumpur Declaration on the
Establishment of the ASEAN Charter and the Cebu Declaration on
the Blueprint of the ASEAN Charter;

MINDFUL of the existence of mutual interests and interdependence

among the peoples and Member States of ASEAN which are bound
by geography, common objectives and shared destiny;

INSPIRED by and united under One Vision, One Identity and One
Caring and Sharing Community;

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

UNITED by a common desire and collective will to live in a region AND TO THIS END, the Heads of State or Government of the
of lasting peace, security and stability, sustained economic growth, Member States of ASEAN, assembled in Singapore on the historic
shared prosperity and social progress, and to promote our vital occasion of the 40th anniversary of the founding of ASEAN, have
interests, ideals and aspirations; agreed to this Charter.

RESPECTING the fundamental importance of amity and CHAPTER I PURPOSES AND PRINCIPLES
cooperation, and the principles of sovereignty, equality, territorial
integrity, non-interference, consensus and unity in diversity; ARTICLE 1 PURPOSES

ADHERING to the principles of democracy, the rule of law and The Purposes of ASEAN are:
good governance, respect for and protection of human rights and
fundamental freedoms; 1. To
-maintain and enhance peace, security and stability and
RESOLVED to ensure sustainable development for the benefit of -further strengthen peace-oriented values in the region;
present and future generations and to place the well-being, livelihood
and welfare of the peoples at the centre of the ASEAN community 2. To enhance regional resilience
building process; -by promoting greater political, security, economic and socio-cultural
cooperation;
CONVINCED of the need to strengthen existing bonds of regional
solidarity to realise an ASEAN Community that is politically 3. To preserve Southeast Asia
cohesive, economically integrated and socially responsible in order -as a Nuclear Weapon-Free Zone and
to effectively respond to current and future challenges and -free of all other weapons of mass destruction;
opportunities;
4. To ensure that the peoples and Member States of ASEAN live
COMMITTED to intensifying community building through and economically
enhanced regional cooperation and integration, in particular by -in peace with the world at large
establishing an ASEAN Community comprising the ASEAN -in a just, democratic and harmonious environment;
Security Community, the ASEAN Economic Community and the
ASEAN Socio-Cultural Community, as provided for in the Bali 5. To create a single market and production base
Declaration of ASEAN Concord II; -which is stable, prosperous, highly competitive
integrated
HEREBY DECIDE to establish, through this Charter, the legal and -with effective facilitation for trade and investment
institutional framework for ASEAN, -in which there is

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
*free flow of goods, services and investment;
*facilitated movement of business persons, professionals, talents and
*labour; and
*freer flow of capital;
Aris: Article 1(5) is the link of the Charter to the Blueprints. The
relevance of the Blueprint to the Charter is that it can be considered
as a contemporaneous and subsequent interpretation of the Charter
under Art. 31 of the VCLT. The ASEAN precedes the Blueprint
because according to the latter, COGNISANT of the need to have a
strengthened institutional framework and unified legal identity as set
forth in the ASEAN Charter by putting in place rules-based systems
to realise the establishment of the AEC by 2015 You can still use
2a because the 2025 Blueprint builds on the 2015 Blueprint. The
Blueprint provides context to the Charter.
6. To alleviate poverty and narrow the development gap within
ASEAN through mutual assistance and cooperation;
7. To
-strengthen democracy,
-enhance good governance and the rule of law, and to
-promote and protect human rights and fundamental freedoms,
-with due regard to the rights and responsibilities of the Member
States of
ASEAN;
8. To respond effectively, in accordance with the principle of
comprehensive security, to all forms of
-threats,
-transnational crimes and
-transboundary challenges;
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9. To promote sustainable development so as to ensure
-the protection of the regions environment,
-the sustainability of its natural resources,
-the preservation of its cultural heritage and the high quality of life of
its
peoples;
10. To develop human resources
through closer cooperation
-in education and life-long learning, and
-in science and technology,
-for the empowerment of the peoples of ASEAN and
-for the strengthening of the ASEAN Community;
11. To enhance the well-being and livelihood of the peoples of
ASEAN
-by providing them with equitable access to opportunities
-for human development, social welfare and justice;
12. To strengthen cooperation
-in building a safe, secure and drug-free environment
-for the peoples of ASEAN;
13. To promote a people-oriented ASEAN
-in which all sectors of society are encouraged
-to participate in, and benefit from,
-the process of ASEAN integration and community building;
14. To promote an ASEAN identity
-through the fostering of greater awareness
-of the diverse culture and heritage of the region; and
15. To maintain the centrality and proactive role of ASEAN
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-as the primary driving force in its relations and cooperation
-with its external partners in a regional architecture
-that is open, transparent and inclusive.
ARTICLE 2 PRINCIPLES
1. In pursuit of the Purposes stated in Article 1, ASEAN and its
Member States reaffirm and adhere to the fundamental principles
contained in the
-declarations,
-agreements,
-conventions,
-concords,
-treaties and
-other instruments of ASEAN.
2. ASEAN and its Member States shall act in accordance with the
following Principles:
(a) respect for the independence, sovereignty, equality, territorial
integrity and national identity of all ASEAN Member States;
(b) shared commitment and collective responsibility in enhancing
regional peace, security and prosperity;
(c) renunciation of aggression and of the threat or use of force or
other actions in any manner inconsistent with international law;
(d) reliance on peaceful settlement of disputes;
(e) non-interference in the internal affairs of ASEAN Member States;
(f) respect for the right of every Member State to lead its national
existence free from external interference, subversion and coercion;
(g) enhanced consultations on matters seriously affecting the
common interest of ASEAN;
(h) adherence to the rule of law, good governance, the principles of
democracy and constitutional government;
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(i) respect for fundamental freedoms, the promotion and protection
of human rights, and the promotion of social justice;
(j) upholding the United Nations Charter and international law,
including international humanitarian law, subscribed to by ASEAN
Member States;
(k) abstention from participation in any policy or activity, including
the use of its territory, pursued by any ASEAN Member State or
non-ASEAN State or any non-State actor, which threatens the
sovereignty, territorial integrity or political and economic stability of
ASEAN Member States;
(l) respect for the different cultures, languages and religions of the
peoples of ASEAN, while emphasising their common values in the
spirit of unity in diversity;
(m) the centrality of ASEAN in external political, economic, social
and cultural relations while remaining actively engaged, outward-
looking, inclusive and non-discriminatory; and
(n) adherence to multilateral trade rules and ASEANs rules-based
regimes for effective implementation of economic commitments and
progressive reduction towards elimination of all barriers to regional
economic integration, in a market-driven economy.
CHAPTER II LEGAL PERSONALITY
ARTICLE 3 LEGAL PERSONALITY OF ASEAN
ASEAN, as an inter-governmental organisation, is hereby conferred
legal personality.
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CHAPTER III MEMBERSHIP ARTICLE 6

ADMISSION OF NEW MEMBERS
ARTICLE 4 MEMBER STATES
1. The procedure for application and admission to ASEAN shall be
The Member States of ASEAN are prescribed by the ASEAN Coordinating Council.
-Brunei Darussalam,
-the Kingdom of Cambodia, 2. Admission shall be based on the following criteria:
-the Republic of Indonesia, (a) location in the recognised geographical region of Southeast Asia;
-the Lao Peoples Democratic Republic, (b) recognition by all ASEAN Member States;
-Malaysia, (c) agreement to be bound and to abide by the Charter; and
-the Union of Myanmar, (d) ability and willingness to carry out the obligations of
-the Republic of the Philippines, Membership.
-the Republic of Singapore,
-the Kingdom of Thailand and 3. Admission shall be decided by consensus by the ASEAN Summit,
-the Socialist Republic of Viet Nam. upon the recommendation of the ASEAN Coordinating Council.

ARTICLE 5 4. An applicant State shall be admitted to ASEAN upon signing an

RIGHTS AND OBLIGATIONS Instrument of Accession to the Charter.

1. Member States shall have equal rights and obligations under this CHAPTER IV ORGANS
Charter. ARTICLE 7 ASEAN SUMMIT
2. Member States shall take all necessary measures, including the
enactment of appropriate domestic legislation, 1. The ASEAN Summit shall comprise the Heads of State or
to effectively implement the provisions of this Charter and Government of the Member States.
to comply with all obligations of membership. 2. The ASEAN Summit shall:
(a) be the supreme policy-making body of ASEAN;
3. In the case of a serious breach of the Charter or noncompliance, (b) deliberate, provide policy guidance and take decisions on
the matter shall be referred to Article 20. key issues pertaining to the realisation of the objectives of ASEAN,
important matters of interest to Member States and
all issues referred to it by
-the ASEAN Coordinating Council,
-the ASEAN Community Councils and
-ASEAN Sectoral Ministerial Bodies;

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
(c) instruct the relevant Ministers in each of the Councils concerned
to
hold ad hoc inter-Ministerial meetings, and
address important issues concerning ASEAN that cut across the
Community Councils.
Rules of procedure for such meetings
shall be adopted by the ASEAN Coordinating Council;
(d) address emergency situations affecting ASEAN by taking
appropriate actions;
(e) decide on matters referred to it under Chapters VII and VIII;
(f) authorise the establishment and the dissolution of Sectoral
Ministerial Bodies and other ASEAN institutions; and
(g) appoint the Secretary-General of ASEAN, with the rank and
status of Minister, who will serve with the confidence and at the
pleasure of the Heads of State or Government upon the
recommendation of the ASEAN Foreign Ministers Meeting.
ARTICLE 8 ASEAN COORDINATING COUNCIL
1. The ASEAN Coordinating Council shall comprise the ASEAN
Foreign Ministers and meet at least twice a year.
2. The ASEAN Coordinating Council shall:
(a) prepare the meetings of the ASEAN Summit;
(b) coordinate
(b) the implementation of agreements and decisions of the ASEAN
Summit;
(c) with the ASEAN Community Councils to enhance policy
coherence, efficiency and cooperation among them;
(d) the reports of the ASEAN Community Councils to the ASEAN
Summit;
(e) consider
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(e) the annual report of the Secretary-General on the work of
ASEAN;
(f) the report of the Secretary-General on the functions and
operations of the ASEAN Secretariat and other relevant bodies;
(g) approve the appointment and termination of the Deputy
Secretaries-General upon the recommendation of the Secretary-
General; and
(h) undertake other tasks provided for in this Charter or such other
functions as may be assigned by the ASEAN Summit.
3. The ASEAN Coordinating Council shall be supported by the
relevant senior officials.
1. The ASEAN Community Councils shall comprise the
-ASEAN Political-Security Community Council,
-ASEAN Economic Community Council, and
-ASEAN Socio-Cultural Community Council.
2. Each ASEAN Community Council shall have under its purview
the relevant ASEAN Sectoral Ministerial Bodies.
3. Each Member State shall designate its national representation for
each ASEAN Community Council meeting.
4. In order to realise the objectives of each of the three pillars of the
ASEAN Community, each ASEAN Community Council shall:
(a) ensure the implementation of the relevant decisions of the
ASEAN Summit;
(b) coordinate the work of the different sectors under its purview,
and on issues which cut across the other Community Councils; and
(c) submit reports and recommendations to the ASEAN Summit on
matters under its purview.
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5. Each ASEAN Community Council updated by the Secretary-General of ASEAN upon the
-shall meet at least twice a year and recommendation of the Committee of Permanent Representatives
-shall be chaired by the appropriate Minister from the Member State without recourse to the provision on Amendments under this
holding Charter.
the ASEAN Chairmanship.
ARTICLE 11 SECRETARY-GENERAL OF ASEAN
6. Each ASEAN Community Council shall be supported by the AND ASEAN SECRETARIAT
relevant senior officials.
1. The Secretary-General of ASEAN shall be
ARTICLE 9 ASEAN COMMUNITY COUNCILS -appointed by the ASEAN Summit for a non-renewable term of
office of
3. ASEAN Summit Meetings shall be: five years,
(a) held twice annually, and be hosted by the Member State holding -selected from among nationals of the ASEAN Member States based
the ASEAN Chairmanship; and on
(b) convened, whenever necessary, as special or ad hoc meetings to alphabetical rotation,
be chaired by the Member State holding the ASEAN Chairmanship, with due consideration to
at venues to be agreed upon by ASEAN Member States. -integrity,
-capability and professional experience, and
ARTICLE 10 ASEAN SECTORAL MINISTERIAL BODIES -gender equality.

1. ASEAN Sectoral Ministerial Bodies shall: 2. The Secretary-General shall:

(a) function in accordance with their respective established (a) carry out the duties and responsibilities of this high office in
mandates; accordance with the provisions of this Charter and relevant ASEAN
(b) implement the agreements and decisions of the ASEAN Summit instruments, protocols and established practices;
under their respective purview; (b) -facilitate and monitor progress in the implementation of ASEAN
(c) strengthen cooperation in their respective fields in support of agreements and decisions, and
ASEAN integration and community building; and - submit an annual report on the work of ASEAN to the ASEAN
(d) submit reports and recommendations to their respective Summit;
Community Councils. (c) participate in meetings of
-the ASEAN Summit,
2. Each ASEAN Sectoral Ministerial Body may have under its -the ASEAN Community Councils,
purview the relevant senior officials and subsidiary bodies to -the ASEAN Coordinating Council, and
undertake its functions as contained in Annex 1. The Annex may be -ASEAN Sectoral Ministerial Bodies and

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
-other relevant ASEAN meetings;
(d) -present the views of ASEAN and
-participate in meetings with external parties
in accordance with approved policy guidelines and mandate given
to the Secretary-General; and
(e) recommend the appointment and termination of the Deputy
Secretaries-General to the ASEAN Coordinating Council for
approval.
3. The Secretary-General shall also be the Chief Administrative
Officer of ASEAN.
4. The Secretary-General shall be assisted by four Deputy
Secretaries-General with the rank and status of Deputy Ministers.
The Deputy Secretaries-General shall be accountable to the
Secretary-General in carrying out their functions.
5. The four Deputy Secretaries-General
shall be of different nationalities from the Secretary-General and
shall come from four different ASEAN Member States.
6. The four Deputy Secretaries-General shall comprise:
(a) two Deputy Secretaries-General
-who will serve a non-renewable term of three years,
-selected from among nationals of the ASEAN Member States based
on alphabetical rotation,
-with due consideration to integrity, qualifications, competence,
experience and gender equality; and
(b) two Deputy Secretaries-General
-who will serve a term of three years,
-which may be renewed for another three years.
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-These two Deputy Secretaries-General shall be openly recruited
based on merit.
7. The ASEAN Secretariat shall comprise
the Secretary-General and
such staff as may be required.
8. The Secretary-General and the staff shall:
(a) uphold the highest standards of integrity, efficiency, and
competence in the performance of their duties;
(b) not seek or receive instructions from any government or external
party outside of ASEAN; and
(c) refrain from any action which might reflect on their position as
ASEAN Secretariat officials responsible only to ASEAN.
9. Each ASEAN Member State undertakes
-to respect the exclusively ASEAN character of the responsibilities
of the Secretary-General and the staff, and
-not to seek to influence them in the discharge of their
responsibilities.
ARTICLE 12
COMMITTEE OF PERMANENT REPRESENTATIVES
TO ASEAN
1. Each ASEAN Member State shall appoint a Permanent
Representative to ASEAN with the rank of Ambassador based in
Jakarta.
2. The Permanent Representatives collectively constitute a
Committee of Permanent Representatives, which shall:
(a) support the work of the ASEAN Community Councils and
ASEAN Sectoral Ministerial Bodies;
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(b) coordinate with ASEAN National Secretariats and other ASEAN 2. This ASEAN human rights body shall operate in accordance with
Sectoral Ministerial Bodies; the terms of reference to be determined by the ASEAN Foreign
(c) liaise with the Secretary-General of ASEAN and the ASEAN Ministers Meeting.
Secretariat on all subjects relevant to its work;
(d) facilitate ASEAN cooperation with external partners; and ARTICLE 15
(e) perform such other functions as may be determined by the ASEAN FOUNDATION
ASEAN Coordinating Council.
1. The ASEAN Foundation shall
ARTICLE 13 -support the Secretary-General of ASEAN and
ASEAN NATIONAL SECRETARIATS collaborate with the relevant ASEAN bodies
-to support ASEAN community building
Each ASEAN Member State shall establish an ASEAN National -by promoting
Secretariat greater awareness of the ASEAN identity,
which shall: people-to-people interaction, and
(a) serve as the national focal point; close collaboration among the business sector, civil society,
(b) be the repository of information on all ASEAN matters at the academia and other stakeholders in ASEAN.
national level;
(c) coordinate the implementation of ASEAN decisions at the 2. The ASEAN Foundation shall be accountable to the Secretary-
national level; General of ASEAN,
(d) coordinate and support the national preparations of ASEAN - who shall submit its report to the ASEAN Summit through the
meetings; ASEAN Coordinating Council.
(e) promote ASEAN identity and awareness at the national level; and
(f) contribute to ASEAN community building. CHAPTER V
ENTITIES ASSOCIATED WITH ASEAN
ARTICLE 14
ASEAN HUMAN RIGHTS BODY ARTICLE 16
ENTITIES ASSOCIATED WITH ASEAN
1. In conformity with the purposes and principles of the ASEAN
Charter relating to the promotion and protection of human rights and 1. ASEAN may engage with entities which support the ASEAN
fundamental freedoms, ASEAN shall establish an ASEAN human Charter, in particular its purposes and principles. These associated
rights body. entities are listed in Annex 2.

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
2. Rules of procedure and criteria for engagement shall be prescribed
by the Committee of Permanent Representatives upon the
recommendation of the Secretary-General of ASEAN.
3. Annex 2 may be updated by the Secretary-General of ASEAN
upon the recommendation of the Committee of Permanent
Representatives without recourse to the provision on Amendments
under this Charter.
CHAPTER VI IMMUNITIES AND PRIVILEGES
ARTICLE 17
IMMUNITIES AND PRIVILEGES OF ASEAN
1. ASEAN shall enjoy in the territories of the Member States such
immunities and privileges as are necessary for the fulfilment of its
purposes.
2. The immunities and privileges shall be laid down in separate
agreements between ASEAN and the host Member State.
ARTICLE 18
IMMUNITIES AND PRIVILEGES OF THE
SECRETARY-GENERAL OF ASEAN AND STAFF OF
THE ASEAN SECRETARIAT
1. The Secretary-General of ASEAN and staff of the ASEAN
Secretariat participating in official ASEAN activities or representing
ASEAN in the Member States shall enjoy such immunities and
privileges as are necessary for the independent exercise of their
functions.
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2. The immunities and privileges under this Article shall be laid
down in a separate ASEAN agreement.
ARTICLE 19
IMMUNITIES AND PRIVILEGES OF THE
PERMANENT REPRESENTATIVES AND OFFICIALS
ON ASEAN DUTIES
1. The Permanent Representatives of the Member States to ASEAN
and officials of the Member States participating in official ASEAN
activities or representing ASEAN in the Member States shall enjoy
such immunities and privileges as are necessary for the exercise of
their functions.
2. The immunities and privileges of the Permanent Representatives
and officials on ASEAN duties shall be governed by the 1961
Vienna Convention on Diplomatic Relations or in accordance with
the national law of the ASEAN Member State concerned.
CHAPTER VII DECISION-MAKING
ARTICLE 20
CONSULTATION AND CONSENSUS
1. As a basic principle, decision-making in ASEAN shall be based on
consultation and consensus.
2. Where consensus cannot be achieved, the ASEAN Summit may
decide how a specific decision can be made.
3. Nothing in paragraphs 1 and 2 of this Article shall affect the
modes of decision-making as contained in the relevant ASEAN legal
instruments.
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4. In the case of a serious breach of the Charter or noncompliance,
the matter shall be referred to the ASEAN Summit for decision.
ARTICLE 21
IMPLEMENTATION AND PROCEDURE
1. Each ASEAN Community Council shall prescribe its own rules of
procedure.
2. In the implementation of economic commitments, a formula for
flexible participation, including the ASEAN Minus X formula, may
be applied where there is a consensus to do so.
CHAPTER VIII SETTLEMENT OF DISPUTES
ARTICLE 22
GENERAL PRINCIPLES
1. Member States shall endeavour to resolve peacefully all disputes
in a timely manner through dialogue, consultation and negotiation.
2. ASEAN shall maintain and establish dispute settlement
mechanisms in all fields of ASEAN cooperation.
ARTICLE 23
GOOD OFFICES, CONCILIATION AND MEDIATION
1. Member States which are parties to a dispute may at any time
agree to resort to good offices, conciliation or mediation in order to
resolve the dispute within an agreed time limit.
2. Parties to the dispute may request the Chairman of ASEAN or the
Secretary-General of ASEAN, acting in an ex-officio capacity, to
provide good offices, conciliation or mediation.
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ARTICLE 24
DISPUTE SETTLEMENT MECHANISMS IN SPECIFIC
INSTRUMENTS
Note: Important provision; take note of which dispute settlement
mechanism should apply.
1. Disputes relating to specific ASEAN instruments shall be settled
through the mechanisms and procedures provided for in such
instruments.
2. Disputes which do not concern the interpretation or application of
any ASEAN instrument shall be resolved peacefully in accordance
with the Treaty of Amity and Cooperation in Southeast Asia and its
rules of procedure.
3. Where not otherwise specifically provided, disputes which
concern the interpretation or application of ASEAN economic
agreements shall be settled in accordance with the ASEAN Protocol
on Enhanced Dispute Settlement Mechanism.
ARTICLE 25
ESTABLISHMENT OF DISPUTE SETTLEMENT
MECHANISMS
Where not otherwise specifically provided, appropriate dispute
settlement mechanisms, including arbitration, shall be established for
disputes which concern the interpretation or application of this
Charter and other ASEAN instruments.
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ARTICLE 26
UNRESOLVED DISPUTES
When a dispute remains unresolved, after the application of the
preceding provisions of this Chapter, this dispute shall be referred to
the ASEAN Summit, for its decision.
ARTICLE 27
COMPLIANCE
1. The Secretary-General of ASEAN, assisted by the ASEAN
Secretariat or any other designated ASEAN body, shall monitor the
compliance with the findings, recommendations or decisions
resulting from an ASEAN dispute settlement mechanism, and submit
a report to the ASEAN Summit.
2. Any Member State affected by non-compliance with the findings,
recommendations or decisions resulting from an ASEAN dispute
settlement mechanism, may refer the matter to the ASEAN Summit
for a decision.
ARTICLE 28
UNITED NATIONS CHARTER PROVISIONS AND OTHER
RELEVANT INTERNATIONAL PROCEDURES
Unless otherwise provided for in this Charter, Member States have
the right of recourse to the modes of peaceful settlement contained in
-Article 33(1) of the Charter of the United Nations or
-any other international legal instruments to which the disputing
Member States are parties.
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CHAPTER IX
BUDGET AND FINANCE
ARTICLE 29
GENERAL PRINCIPLES
1. ASEAN shall establish financial rules and procedures in
accordance with international standards.
2. ASEAN shall observe sound financial management policies and
practices and budgetary discipline.
3. Financial accounts shall be subject to internal and external audits.
ARTICLE 30
OPERATIONAL BUDGET AND FINANCES OF THE ASEAN
SECRETARIAT
Note: The annual contributions of every member should be equal,
and not according to any other criteria
1. The ASEAN Secretariat shall be provided with the necessary
financial resources to perform its functions effectively.
2. The operational budget of the ASEAN Secretariat shall be met by
ASEAN Member States through equal annual contributions which
shall be remitted in a timely manner.
3. The Secretary-General shall prepare the annual operational budget
of the ASEAN Secretariat for approval by the ASEAN Coordinating
Council upon the recommendation of the Committee of Permanent
Representatives.
4. The ASEAN Secretariat shall operate in accordance with the
financial rules and procedures determined by the ASEAN
Coordinating Council upon the recommendation of the Committee of
Permanent Representatives.
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CHAPTER X ARTICLE 33
ADMINISTRATION AND PROCEDURE DIPLOMATIC PROTOCOL AND PRACTICES
ASEAN and its Member States shall adhere to existing diplomatic
ARTICLE 31 protocol and practices in the conduct of all activities relating to
CHAIRMAN OF ASEAN ASEAN. Any changes shall be approved by the ASEAN
1. The Chairmanship of ASEAN shall rotate annually, based on the Coordinating Council upon the recommendation of the Committee of
alphabetical order of the English names of Member States. Permanent Representatives.
2. ASEAN shall have, in a calendar year, a single Chairmanship by
which the Member State assuming the ARTICLE 34
Chairmanship shall chair: WORKING LANGUAGE OF ASEAN
(a) the ASEAN Summit and related summits; The working language of ASEAN shall be English.
(b) the ASEAN Coordinating Council;
(c) the three ASEAN Community Councils; CHAPTER XI
(d) where appropriate, the relevant ASEAN Sectoral Ministerial IDENTITY AND SYMBOLS
Bodies and senior officials; and
(e) the Committee of Permanent Representatives. ARTICLE 35
ASEAN IDENTITY
ARTICLE 32 ASEAN shall promote its common ASEAN identity and a sense of
ROLE OF THE CHAIRMAN OF ASEAN belonging among its peoples in order to achieve its shared destiny,
The Member State holding the Chairmanship of ASEAN shall: goals and values.
(a) actively promote and enhance the interests and wellbeing of
ASEAN, including efforts to build an ASEAN Community through ARTICLE 36
policy initiatives, coordination, consensus and cooperation; ASEAN MOTTO
(b) ensure the centrality of ASEAN;
(c) ensure an effective and timely response to urgent issues or crisis Note: Memorize. May be asked as an essay question.
situations affecting ASEAN, including providing its good offices and
such other arrangements to immediately address these concerns; The ASEAN motto shall be: "One Vision, One Identity, One
(d) represent ASEAN in strengthening and promoting closer Community"
relations with external partners; and
(e) carry out such other tasks and functions as may be mandated.

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

ARTICLE 37 ARTICLE 40
ASEAN FLAG ASEAN ANTHEM

Note: Memorize as well, especially the colors and their meanings. ASEAN shall have an anthem.

CHAPTER XII
EXTERNAL RELATIONS

ARTICLE 41
CONDUCT OF EXTERNAL RELATIONS

Blue peace and stability 1. ASEAN shall develop friendly relations and mutually beneficial
Red courage and dynamism dialogue, cooperation and partnerships with countries and sub-
White purity regional, regional and international organisations and institutions.
Yellow prosperity 2. The external relations of ASEAN shall adhere to the purposes and
Stalks of padi friendship and solidarity principles set forth in this Charter.
Circle - unity 3. ASEAN shall be the primary driving force in regional
arrangements that it initiates and maintain its centrality in regional
ARTICLE 38 cooperation and community building.
ASEAN EMBLEM 4. In the conduct of external relations of ASEAN, Member States
shall, on the basis of unity and olidarity, coordinate and endeavour
to develop common positions and pursue joint actions.
5. The strategic policy directions of ASEANs external relations
shall be set by the ASEAN Summit upon the recommendation of
the ASEAN Foreign Ministers Meeting.
6. The ASEAN Foreign Ministers Meeting shall ensure consistency
and coherence in the conduct of ASEANs external relations.
7. ASEAN may conclude agreements with countries or subregional,
ARTICLE 39 regional and international organisations and institutions. The
ASEAN DAY procedures for concluding such agreements shall be prescribed
by the ASEAN Coordinating Council in consultation with the
August 8th shall be observed as ASEAN Day. ASEAN Community Councils.

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ARTICLE 42
DIALOGUE COORDINATOR
1. Member States, acting as Country Coordinators, shall take turns to
take overall responsibility in coordinating and promoting the
interests of ASEAN in its relations with the relevant Dialogue
Partners, regional and international organisations and institutions.
2. In relations with the external partners, the Country Coordinators
shall, inter alia:
(a) represent ASEAN and enhance relations on the basis of mutual
respect and equality, in conformity with ASEANs principles;
(b) co-chair relevant meetings between ASEAN and external
partners; and
(c) be supported by the relevant ASEAN Committees in Third
Countries and International Organisations.
ARTICLE 43
ASEAN COMMITTEES IN THIRD COUNTRIES AND
INTERNATIONAL ORGANISATIONS
1. ASEAN Committees in Third Countries may be established in
non-ASEAN countries comprising heads of diplomatic missions of
ASEAN Member States. Similar Committees may be established
relating to international organisations. Such Committees shall
promote ASEANs interests and identity in the host countries and
international organisations.
2. The ASEAN Foreign Ministers Meeting shall determine the
rules of procedure of such Committees.
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ARTICLE 44
STATUS OF EXTERNAL PARTIES
1. In conducting ASEANs external relations, the ASEAN Foreign
Ministers Meeting may confer on an external party the formal status
of Dialogue Partner, Sectoral Dialogue Partner, Development
Partner, Special Observer, Guest, or other status that may be
established henceforth.
2. External parties may be invited to ASEAN meetings or
cooperative activities without being conferred any formal status, in
accordance with the rules of procedure.
ARTICLE 45
RELATIONS WITH THE UNITED NATIONS SYSTEM AND
OTHER INTERNATIONAL ORGANISATIONS AND
INSTITUTIONS
1. ASEAN may seek an appropriate status with the United Nations
system as well as with other sub-regional, regional, international
organisations and institutions.
2. The ASEAN Coordinating Council shall decide on the
participation of ASEAN in other sub-regional, regional,
international organisations and institutions.
ARTICLE 46
ACCREDITATION OF NON-ASEAN MEMBER STATES TO
ASEAN
Non-ASEAN Member States and relevant inter-governmental
organisations may appoint and accredit Ambassadors to ASEAN.
The ASEAN Foreign Ministers Meeting shall decide on such
accreditation.
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CHAPTER XIII
GENERAL AND FINAL PROVISIONS
ARTICLE 47
SIGNATURE, RATIFICATION, DEPOSITORY AND ENTRY
INTO FORCE
1. This Charter shall be signed by all ASEAN Member States.
2. This Charter shall be subject to ratification by all ASEAN
Member States in accordance with their respective internal
procedures.
3. Instruments of ratification shall be deposited with the Secretary-
General of ASEAN who shall promptly notify all Member States of
each deposit.
4. This Charter shall enter into force on the thirtieth day following
the date of deposit of the tenth instrument of ratification with the
Secretary-General of ASEAN.
ARTICLE 48
AMENDMENTS
1. Any Member State may propose amendments to the Charter.
2. Proposed amendments to the Charter shall be submitted by the
ASEAN Coordinating Council by consensus to the ASEAN Summit
for its decision.
3. Amendments to the Charter agreed to by consensus by the
ASEAN Summit shall be ratified by all Member States in accordance
with Article 47.
4. An amendment shall enter into force on the thirtieth day following
the date of deposit of the last instrument of ratification
with the Secretary-General of ASEAN.
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ARTICLE 49
TERMS OF REFERENCE AND RULES OF PROCEDURE
Unless otherwise provided for in this Charter, the ASEAN
Coordinating Council shall determine the terms of reference and
rules of procedure and shall ensure their consistency.
ARTICLE 50
REVIEW
This Charter may be reviewed five years after its entry into force or
as otherwise determined by the ASEAN Summit.
ARTICLE 51
INTERPRETATION OF THE CHARTER
1. Upon the request of any Member State, the interpretation of the
Charter shall be undertaken by the ASEAN Secretariat in accordance
with the rules of procedure determined by the ASEAN Coordinating
Council.
2. Any dispute arising from the interpretation of the Charter shall be
settled in accordance with the relevant provisions in Chapter VIII.
3. Headings and titles used throughout the Charter shall only be for
the purpose of reference.
ARTICLE 52
LEGAL CONTINUITY
1. All treaties, conventions, agreements, concords, declarations,
protocols and other ASEAN instruments which have been in effect
before the entry into force of this Charter shall continue to be valid.
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2. In case of inconsistency between the rights and obligations of Lee Leviter, Note, The ASEAN Charter: ASEAN
ASEAN Member States under such instruments and this Failure or Member Failure?, 43 N.Y.U. INTL L.
Charter, the Charter shall prevail. & POL. 159 (2010)

ARTICLE 53 CONCEPTS
ORIGINAL TEXT ASEAN
- During its first twenty years, it existed primarily to improve
The signed original text of this Charter in English shall be deposited diplomatic relations among its member states, so that they
with the Secretary-General of SEAN, who shall provide a certified could better stand against the specter of communism
copy to each Member State. - The five original members created the organization to
manage the regional balance of power not only with respect
to the global superpowers but also with respect to each other
ARTICLE 54 - Particularly worrisome was Indonesia, which had the largest
REGISTRATION OF THE ASEAN CHARTER military in the Southeast Asia and which sought to limit
global influence so that it might be a regional power
This Charter shall be registered by the Secretary-General of ASEAN - As Thailand and Singapore push for deeper economic
with the Secretariat of the United Nations, pursuant to Article 102, integration, the resultant agreements function more as
coordinating mechanisms rather than policy imperatives
paragraph 1 of the Charter of the United Nations.
- As Indonesia and other states seek an ASEAN that is more
centralized and is a stronger force for human rights, resort to
ARTICLE 55 the ASEAN Ways norm of non-interference empowers
ASEAN ASSETS Cambodia, Laos, Vietnam, and Myanmar to jealously guard
The assets and funds of the Organisation shall be vested in the name against unwanted scrutiny of domestic affairs
of ASEAN. - With the important exception of Myanmar, the members
were united in their belief that ASEAN would have to pursue
integration more aggressively if regional economic growth
Note:
was to remain the organizations raison detre
2 States currently seeking accession: Papua New Guinea and East
o Implicitly, they acknowledged that economic
Timor integration would require a shift away from the
Observer Status: Bangladesh and Fiji ASEAN Way, as global economic forces would
continue to pose a far greater threat than regional
economic players
- The members have vastly different political economies
o Singapore and Malaysia both rely on exports
But while Singapore is an eager liberalizer,
Malaysiajoined by Indonesiais an

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economic nationalist, more interested in o Older members focus on cooperation and

regional economic strength than integration coordination
into the global economy - It does not represent a radical approach to international
o There is a vast development gap between ASEANs relations
richest and poorest members o Simply formalized commitment to both relations-
- Non-tariff barriers remain the primary obstacles to regional based governance and to soft law
integration - Emerged so that the members could mutually assist each
- These can include inconsistent domestic policies, complex others political, economic, and cultural development, while
rules of origin, and conflicting customs laws, among others still avoiding dominance by any single state
- - Served as a check against Singapore and Thailands pursuit
of deeper economic integration in light of other member
ASEAN Way states unwillingness or inability to participate
- Several principles which collectively prevent organizational
change Treaty of Amity and Cooperation
- Two components: - Generally restricts the member states ability to hold each
o Emphasizes decision-making through informal other accountable or to intervene in each others affairs
consultation among diplomats, which facilitates
group consensus at official meetings Relations-based systems
Allows member states to determine areas of - Actors avoid formal arrangements, preferring to construct
agreement and compartmentalize agreements based upon mutual trust, knowledge, and
contentious issues, so that disputes do not familiarity
delay entire agreements - Parties rely on the strength of interpersonal relationships to
o A series of six behavioral principles set forth in the enforce any agreements
1976 Treaty of Amity and Cooperation:
Respect for state sovereignty
Rules-based governance
Freedom from external interference
Non-interference in internal affairs - Utilized formal institutions
(particularly emphasized by member states) - Actors engage in traditional negotiations, adhere to binding
Peaceful dispute settlement norms, and resolves disputes through formalized processes
Renunciation of the use of force -
Cooperation
- Emerged to ensure stability in a historically tumultuous Soft law
region - One end of a spectrum that defines certain attributes about
- Members may not have a common conception of the legal rules, at the other end of which is hard law
ASEAN Way: - Describes three characteristics: obligation, precision, and
o Myanmar, Cambodia and Laos emphasize non- delegation
interference

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
o Obligation degree to which actors are bound by
particular rules
o Precision extent to which rules define the specific
conduct
o Delegation extent to which a third party has
authority to interpret the rules and resolves disputes
o Players might vary a proposed commitment along
any of these dimensions when they agree over ends
but are too divided to agree over specific means, or
when they want to grapple with uncertain outcomes
by monitoring the impacts of their commitments
over time
- Vaguely worded
- Has weak enforcement provisions
Asian Financial Crisis
- Began in 1997
- Following a prolonged investment boom in East and
Southeast Asia, currency speculators began selling the Thai
baht and other local currencies
- In response to the rapid devaluation, Thailand, Malaysia and
Indonesia each floated their respective currencies on the
international market
- Stock markets declined and debt rose dramatically
- The IMFs proposals ultimately exacerbated the existing
economic trauma
- Southeast Asia viewed the IMFs efforts as simply a strategy
by the West to recover its own wealth at Asias expense
- ASEAN regarded the attacks on the baht as simply a
domestic problem and played no role when several Asian
banks provided assistance to Thailand
ASEAN Economic Community
- Proposed by Singapore and joined by Thailand in 2003
o Accepted by the member states in the Bali Concord
II
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o Refined in 2004s Vientiane Action Program, an
agreement designed to implement the Bali Concord
II (ASEAN had adopted the 2004 DSM by the time
it created the VAP, so the VAP simply called for a
DSM that would ensure the implementation of all
economic agreements)
Bali Concord II and Vientiane Action Program
- Sought to pursue a number of subsidiary goals
o Articulated the need to improve the existing ASEAN
Dispute Settlement Mechanism
The Bali Concord II and the High-Level
Task Force sought to ensure that dispute
resolution remained binding and non-
political, and followed strict timelines
o Discussed the necessity of lowering non-tariff
barriers to trade
Included measures such as standardizing the
rules of origin, simplifying regional customs
procedures, and identifying and removing all
non-tariff barriers by 2005
o Recognized the need to narrow the development gap
Bali Concord II announced that member
states should ensure that CLMV and their
people participated equitably in economic
integration
VAP articulated that the member states
would help the CLMV states remove
barriers to trade and ensure that both the
costs and benefits of economic integration
were evenly distributed
o The VAP announced that the organization create an
ASEAN Development Fund to facilitate inter-
ASEAN aid
- The Bali Concord II offered economic integration as the
primary justification for ASEAN security cooperation
- The Bali Concord II expanded security to include broad
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political, economic, social and cultural aspects.
Myanmar crisis, 2003
- The government banned the major opposition party, the
National League for Democracy and arrested its leader Aung
San Suu Kyi
- Indonesia led the effort to resolve the crisis, both out of fear
that ASEAN would become irrelevant, and in order to regain
its position as regional leader
- Indonesia, Philippines and Malaysia tried to engage
Myanmar through the ASEAN Troika but Myanmar refused
to participate in its processes
- Even if Myanmar participated, the process would have been
little different from consultation since the Troika could
neither make binding decisions nor address the member
states internal affairs
- Divided Southeast Asia between those states which wanted
to maintain a strong norm of non-interference, and those
which attempted to compel Myanmar to accede to
international norms of good governance
- The older members adopted a principle of enhanced
interaction
o Permitted individual states to publicly comment on
Myanmar, although they could not present articulate
specific timelines for progress
Important shift in the non-interference
component of ASEAN Way: traditionally,
non-interference forbade public discussion
of domestic affairs
Myanmar, Cambodia and Laos maintained
that the ASEAN Ways primary function
was to shield against external intervention
Older members now claimed that non-
interference permitted them to engage a
member whose policies had external adverse
consequences
The irony was that these original members
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initially developed the ASEAN Way to stave
off Indonesian dominance, now they are
adapting it to assist Indonesias renewed
efforts to dominate
- Myanmar never responded to enhanced interaction; it
consistently acted in bad faith and faced no formal
consequences for its behavior
- The UN has taken over efforts to promote Myanmar
democratization, and ASEAN has been relegated to a
secondary role
- Cambodian and Laotian sympathies towards Myanmar
demonstrated fundamental philosophical divisions within
ASEAN concerning regional responsibility for basic norms
of governance
ASEAN Troika
- A dispute resolution instrument that could make findings and
recommendations to ASEAN governmental officials
- Consistent with the ASEAN Way, the mechanism was
voluntary
- It was a mechanism by which to engage in relations-based
dispute resolution
ASEAN Security Community
- Indonesias attempt to inject norms and instruments into
ASEAN, anticipating that they would make ASEAN better
able to grapple with Myanmar, in addition to solving other
regional crises
- First appeared in skeletal form in the 2003 Bali Concord II
- The ASC Plan of Action, adopted in the 2005 Vientiane
Action Program, described how to implement the ASC
o Demonstrated a number of important shifts in
ASEANs security functions, which the Charter
failed to meaningfully advance
First shift was the emergence of security
cooperation in the VAP as an independent
goal of ASEAN cooperation
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This suggested that the members
would be prepared to develop a
more rules-based security
community as they had done when
pursuing ASEANs economic goals
Second shift was the ASCs redefinition of
the scope of security cooperation
The primary expression of
ASEANs security goals for the first
twenty years of the organization was
the Treaty of Amity and
Cooperation, which made the
ASEAN a little more than a defense
pact
- The ASC Plan of Action articulated that the goal of
developing political culture would include establishing
democracy in Southeast Asia, promoting human rights,
strengthening rule of law and good governance, and
increasing the participation of nongovernmental
organizations in ASEANs activities
o It provided for the members to adopt a Charter that
would enable ASEAN to develop shared norms and
strengthen its institutional structure
Kuala Lumpur Declaration
- Where ASEAN formally announced its commitment to
establish a charter which would fulfill the vision set out in
the Bali Concord II and subsequent Action Plans
- Delegated to an Eminent Persons Group the task of offering
practical recommendations for the Chartee
Eminent Persons Group
- A group of highly distinguished and well respected citizens
from ASEAN member countries
- Tasked to construct a document that would balance the
practical with the visionary
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- Sought to apply the 2004 ASEAN Protocol on Enhanced
Dispute Settlement Mechanism to all disputes pertaining to
economic agreements
o Recommended that economic agreements employ an
opt-out mechanism to engender greater flexibility in
implementation
- Proposed two groundbreaking reforms:
o Suggested that member states should utilize a
majority-vote process when consensus could not be
achieved
Would have contravened a core component
of the ASEAN Way
Would almost necessarily require that
members subordinate national interests to
regional interests
o Recommended that ASEAN develop a Special Fund
to help support development efforts
Would have drawn resources from member
states through voluntary contributions and
from the business sector through special
taxes or fees
Would have been an indispensable
mechanism as much of the CLMV states
inability (as opposed to unwillingness) to
pursue integration as quickly as the older
member states was due to their lack of
resources and infrastructure
- Foresaw an ASEAN that would protect and promote human
rights, reject unconstitutional changes in government, and
commit to the development of democracy and the rule of law
in Southeast Asia
- Suggested that ASEAN explore the establishment of a
human rights mechanism
- Proposed a solution for member state discipline
o Discipline states upon a unanimous vote,
discounting the state subject to the proceeding
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o Mechanism by which they could decide that a peer
states actions violated certain basic regional norms
- Announced that all political and security disputes should be
resolved under the High Council of the Treaty of Amity and
Cooperation, an instrument that would only convene if all
the parties agreed
o Also maintained a consensus requirement for
decisions regarding security matters
- Subordinated ASEANs security concerns to its economic
goals
CRITICISMS
ASEAN Way
- Forces the organization to adopt only those policies which
satisfy the lowest common denominator
- ASEANs failure to develop a more robust Charter
represents a failure of the older (and more progressive)
member states to persuade the others to set aside the ASEAN
Way
- Because consensus is the basis for decision-making, the
member states which seek the least-restrictive version of a
particular commitment more often prevail
- It is a barrier to change and a check on member state
ambition
- Although the ASEAN Free Trade Area formally established
a rules-based commitment to lower tariffs, it accommodated
those states which did not have Singapores or Thai- lands
zeal for integration by incorporating elements of soft law and
relations-based governance
o The reduction timelines were so lengthy that they
were tantamount to having no time- lines at all
o This mechanism highlighted ASEANs focus on
relations-based governance, as the member states
anticipated that those among them which upheld the
tariff commitments would pressure potential
defectors not to opt-out
- The entire structure enabled, rather than compelled,
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economic integration
- Demonstrating their gradual acceptance of rules-based
economic integration, the members crafted a DSM in 2004,
but it nevertheless remains an option rather than a mandate
- ASEAN was created in part to maintain the regional balance
of power, and the ASEAN Way emerged to ensure that no
course pursued would threaten the internal stability of any
single member
o The organizations economic leaders did not share
this view
Singapore and Thailand pushed ASEAN to
espouse goals and values that not all states
in the region necessarily shared
- Although the member states are willing to pursue economic
integration to some extent, they use agreements that employ
soft law and relations-based governance, enabling them to
place national interests above regional interests and
demonstrating an underlying disconnect with Singapore and
Thailands abilities and goals
- Members were unable to resolve regional tensions using
ASEANs existing instruments, and would have only been
able to depart from those instruments through unanimous
agreement
- ASEAN will only be as strong as the CLMV states allow
- ASEANs power as a regional organization with independent
clout is weakened when it permits member states to
implement agreements flexibly, so that every state may
move forward at its own pace
ASEAN Charter
- Observers maintained high hopes, with the former ASEAN
Secretary-General hoping that the instrument would
explicitly reject genocide, the use of child soldiers, and
discrimination on the basis of gender, race, religion, or
ethnicity
- Did little more than grant ASEAN a legal personality, after a
two-year process
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o Means little in light of ASEANs institutional
incapacity
- Simply consolidates ASEANs existing pronouncements
- Procedures for the members rights and obligations,
decision-making process, and dispute settlement do not
markedly differ from the ASEAN Way
- Founding member states sought a more cohesive regional
organization and supported an ASEAN that could make and
implement decisions more effectively, but CLMV states
preferred to maintain ASEAN as a mediator between
Southeast Asian governments
- While Indonesia, Thailand, and the Philippines all supported
an ASEAN that better protected human rights and
democratic values, Singapore, Malaysia, and the CLMV
states wanted to maintain greater control over dissident
voices in their respective countries
- Members had differing conceptions of the ASEAN Way
o Older member states generally saw the ASEAN Way
as a norm to facilitate cooperation, and they sought
to develop a Charter that facilitated ASEANs ability
to achieve common goals
o Newer members saw the ASEAN Way as a norm of
non-interference, and they wanted a Charter that
would retain ASEANs character as a relations-
based organization
- Does little to advance economic integration
o Primary innovation is a declaration that economic
arrangements will now be governed by a rules-based
regime
Does not address the form of the economic
agreements, crafted to enable member states
to shirk duties or avoid commitments when
inconvenient or inconsistent with domestic
pressures
Any added benefit of an ostensibly rules-
based regime is undermined by failings in
other areas
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o Simply retains the existing infrastructure for
economic integration
Permits individual member states to opt-out
of economic commitments only when there
is an initial consensus to invoke the opt-out
arrangement
Subtly changes the EPGs
recommendation which incorporated
no consensus requirement
The opt-out mechanism does not
function as a peer pressure device
as originally intended and members
freely avoid commitments
- Failed to implement the EPGs only innovations for
economic integration
o Eschewed the EPGs suggestion to codify when
majority vote would suffice, retaining consultation
and consensus as a default rule
- Did not include an ASEAN Special Fund to help develop
CLMV states
- Established an unenforceable regime for security
cooperation
o Established a human rights body that has neither a
structure nor a function
o It emphasizes that ASEAN should promote human
rights in Southeast Asia but only to the extent that
ASEAN can maintain due regard for member states
rights
o While it affirms that member states must respect
human rights and democratic principles, it also
maintains that the member states must respect each
others independence and sovereignty and refrain
from interfering in each others internal affairs
- Charters scheme for dispute resolution rejects the EPGs
advocacy for a single High Council, relying instead on
mechanisms developed on an ad hoc basis
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- The Charter delegates to the ASEAN Summit a number of
functions for which the EPG envisioned an independent
institution
o The Summit is an inappropriate body to resolve
otherwise unresolved disputes, if the goal is to make
members more accountable to ASEANs mandates
- Made no structural improvements to address concerns about
the in- ability to implement agreements, the construction of
agreements with lengthy timelines and broad exceptions, and
the omnipresent threat of the development gap
- The Charters changes either restated existing practices, or
further entrenched the organizations problems
- On why ASEANs capacity to develop economic institutions
is radically greater than its ability to develop institutions of
security cooperation
o CLMV states encountered each goal under different
circumstances
They may have implicitly accepted that
membership in the ASEAN would entail
some level of economic integration, and
they may have shared that goal, but they
relied on the ASEAN Way to ensure that
any subsequent economic agreements would
be consistent with their own domestic goals
and abilities, and they would not be bound
without their consent
They may see the ASEAN Way as a
countervailing norm that excuses
any implementation obligations
o Members are concerned about power
CLMV governments may perceive that
engaging in trade and economic
liberalization does not necessarily threaten
their grip on power, because they can
structure economic integration so that the
benefits primarily accrue to those already in
power
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CLMV states likely view good-governance
norms as necessarily entailing a requirement
to alter domestic governance in a way that
shifts power to other sectors of society
CLMV states are willing to sign on
to instruments entailing security
cooperation as long as the
implementation obligations remain
weak
- Simon Tay argues that the instrument may represent a
Constitutional Moment.
o By espousing ASEANs specific purposes and
rearranging the organizations institutional structure,
he explains, ASEAN may be better equipped to
generate legitimate expectations that arise from
repeated interactions from the member states
o For observers interested in power, the Charter will
seem ineffectual because it lacks teeth
- ASEANs continued disconnect between its pronouncements
and its capabilities may call into question the documents
validity as any- thing more than another aspirational
announcement
ASEAN Economic Community Blueprint
- Member states chose to present the steps to achieve the AEC
in a binding but flexible roadmap, rather than in the
Charter
o Suggests an underlying hesitancy to commit to
certain economic goals
- Another economic instrument that makes bold
proclamations, but leaves significant room for states
uncertain about their future to deviate from the necessary
steps
o The ATIGA itself is simply an amalgam of previous
trade instruments and establishes no new
commitments
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

Despite the instruments objective to IV. ASEAN Framework on Investments

establish a single trade area by 2015, it
affords the CLMV states significant ASEAN Economic Blueprint
flexibilities
- While implementation of the Blueprint is generally on
schedule, the members have fallen behind on several ASEAN Blueprint 2015 ASEAN Blueprint 2025
important measures, including developing a unified customs FREE FLOW OF TRADE IN FREE FLOW OF TRADE IN
protocol SERVICES SERVICES
- Since Southeast Asian economic prosperity depends upon its One of the most
ability to compete with China as an investment and important elements in OBJECTIVES:
production base, the members may indeed have sufficient 1. Further broaden and
realizing ASEAN
motivation to integrate
Economic Community deepen services
o Chinas regional dominance might be a sufficient
threat to compel real economic cooperation even Where there will be integration within
among the most reluctant states substantially no ASEAN,
restriction to ASEAN 2. ASEANs integration into
Blueprint for the ASEAN Political-Security Community services supplies in the global supply chains,
- Adopted in March 2009 providing services and and
- Announces ASEANs aspiration to establish the APSC by in establishing 3. Enhance ASEAN
2015 companies across Member States
- Both expresses the goal of a rules-based security community competitiveness in
national borders within
and promises to establish arbitration as a dispute settlement
the region services
mechanism
SUBJECT TO
ASEAN Intergovernmental Commission on Human Rights DOMESTIC A strong services sector
- Bound by the ASEAN Way norms, including non- REGULATIONS facilitates:
interference and consensus-based decision making 1. Industrial development,
- Organs mandate provides for function that both promote GR: Liberalization of services 2. Innovation, and
and protect human rights, although the former far outnumber has been carried out through 3. Efficiency
the latter
negotiations under the
- Will likely affect human rights conditions only to the extent AFAS allowed ASEAN to
that each member government will allow Coordinating Committee on
Services broaden the coverage and reduce
o May be a source of tension
- Watered-down version of Indonesia and Thailands original the limitations on market access
vision of an organ that would coordinate country visits and EX: negotiation of specific and national treatment across
investigate regional human rights abuses service sectors (i.e., financial services sectors.

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
services, air transport) are
carried out through their
respective ministerial bodies.
In liberalizing services, there
should be no backloading of
commitment, and pre-agreed
flexibility shall be accorded to
all ASEAN Members.
ACTIONS
1. Remove substantially
all restrictions on trade
in services in 5 priority
sectors:
a. Air transport
(by 2010)
b. e-ASEAN
(2010)
c. Healthcare
(2010)
d. Tourism (2010)
e. Logistics
services (2013)
2. Remove substantially
all restrictions on trade
in services for all other
sectors by 2015
3. Undertake liberalization
through consecutive
rounds of every two
years until 2015
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Next Agenda: Facilitate 4. Target to schedule joint promotion activities
negotiations and minimum numbers of to attract FDI in the
implementation of the new sub-sectors for services sector, and the
ASEAN Trade in each round based on exchange of best practices
Services Agreement GATS W/120 universe
(ATISA) as the legal of classification
instrument for further 5. Schedule packages of
integration of services commitments for every
sectors in the region. round according to the
ff. parameters:
ACTIONS a. No restrictions
1. Review existing for Modes 1
flexibilities, limitations, and 2
thresholds, and carve-outs i. Except:
2. Enhance mechanism to due to
attract foreign direct bona fide
investments in the regulatory
services sector reasons
3. Explore alternative (i.e., public
approaches for further safety)
liberalization of services which are
4. Establish possible subject to
disciplines on domestic agreement
regulations to ensure by all
competitiveness on the Members
services sector on a case-
5. Consider the development by-case
of sectoral annexes basis
6. Enhance technical b. Allow for
cooperation in the foreign
services sector for human (ASEAN)
resource development, equity
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

participation: limitations, Mode 4 and

i. First 4 limitations in the
priority horizontal commitment
sectors: Not for each round by 2009
less than 7. Schedule commitment
51% by acc. to agreed
2008, 70% parameters for national
by 2010 treatment limitations,
ii. Logistics: Mode 4, and limitations
not less in the horizontal
than 49% commitment set in
by 2008, 2009.
51% by 8. Complete the
2010, 70% compilation of an
by 2013 inventory of barriers to
iii. Other services by August
sectors: not 2008
less than 9. Allow for overall
49% by flexibilities in
2008, 51% scheduling
by 2010, liberalization
70% by commitments
2015 a. Possibility of
c. Progressively catching up in
remove other the next round
Mode 3 market if a Member is
access not able to meet
limitations by the parameters
2015 of
6. Set the parameters of commitments
liberalization for set for the
national treatment previous round

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

b. Allowing for guided by the following

substituting principles in pacing
sub-sectors that their liberalization
have been measures:
agreed to be a. Liberalization
liberalized in a through
round but for ASEAN Minus
which a X formula,
Member is not where countries
able to make that are ready to
commitments liberalize can
with sub- proceed first
sectors and be joined
c. Liberalization by others later
through the b. Liberalization
ASEAN Minus should take
X formula place with due
respect for
FINANCIAL SERVICES national policy
SECTOR objectives and
Liberalization measures the level of
of the financial services economic and
sector should allow financial sector
members to ensure: development of
a. Orderly each Member
financial sector
development ACTIONS
b. Maintenance of 1. Progressively liberalize
financial and restrictions in sub-
socio-economic sectors or modes as
stability identified by each
Members would be Member by 2015

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
2. Progressively liberalize
restrictions in sub-
sectors or modes, which
are not identified under
pre-agreed
flexibilities, by 2020
ASEAN Blueprint 2015
Attract Foreign Direct
Investment and intra-ASEAN
Investments
ASEAN Investment
Cooperation is implemented
through
ASEAN Investment
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Area investment restrictions
and impediments
Investment Protection Identification of
ASEAN Agreement for appropriate approaches
the Promotion and and mechanisms in
Protection of phasing out or the
Investment (ASEAN reduction of ACIA
Investment Guarantee Reservation lists
ASEAN Blueprint 2025 Agreement) Continue to undertake
Enhance the attractiveness as an and enhance the
investment destination through Coordinating Committee
Open on Investment Peer
Transparent Review Mechanism
Predictable Continue to undertake
Investment Regime which can be joint promotion of the
achieved through the ASEAN ACIA
Comprehensive Investment AIA
Agreement which provides for Industries protected
Progressing liberalization o Manufacturing
of existing investment o Agriculture
restriction on the five o Fishery
sectors o Forestry
o Manufacturing o Mining and
o Agriculture Quarrying
o Fishery Shall be Open and
o Forestry national treatment
o Mining granted to investors at
Strengthening Investment the pre-establishment
Protection and post-establishment
Ensuring the transparency stages.
of investment laws, Temporary Exclusion
regulations and lists are to be phased
administrative guidelines out
Measures Sensitive Lists do not
Completion of a built-in have a timeline for
agenda for the removal or phasing out.
improvement of
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

Investment Protection investments

Strengthening the o Coordination
following with
o Investor State government
Dispute ministries and
Settlement agencies
o Transfer and concerned
Repatriation of o Consulting the
Capital private sector
o Transparency in o Identify areas
expropriation for bilateral
and economic
compensation integration
o Full protection
and Security
Promotion and Awareness
o Treatment of
compensation Create an environment
resulting from to promote all forms of
strife investment
Investment Facilitation and Promotion of intra-
Cooperation ASEAN Investments
Transparent, Consistent Growth and
and Predictable development of MSEs
Investment rules and MNEs
o Harmonization Promotion of industrial
of Investment complementation and
Policies production networks
o Streamlining among Multinationals
application and Promotion of joint
approval investment missions
o Promotion of Extend benefits of
investment ASEAN industrial
information cooperation
dissemination Framework of bilateral
o Strengthen agreements to avoid
database on all double taxation
forms of

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

Liberalization
Extension of non- Article 2: Guiding Principles
discriminatory Create a liberal, facilitative, transparent and competitive
treatment to investors in investment environment in ASEAN
ASEAN with limited
(a) investment liberalization, protection, promotion and
exceptions
Reduce or eliminate facilitation
restriction to entry for (b) progressive liberalization of investment for a free and
investment in the open instrument environment
Priority Integration (c) benefit investors and investments
Sectors (d) preferential treatment among MS
Eliminate or reduce (e) no back-tracking of commitments made under AIA
restrictive investment
Agreement and ASEAN IGA
measures and other
(f) special and differential treatment and other flexibilities to
impediments
MS depending on level of development
(g) reciprocal treatment for concessions among MS
ASEAN Comprehensive Investment Agreement (h) accommodate expansion of agreement scope

Article 1: Objective Article 3: Scope of Application

Creation of a free and open investment regime in ASEAN to investors of any other MS
achieve economic integration under the AEC and the investments, in its territory, of investors of any other MS
blueprint apply to existing investments as to the date of entry into
(a) progressive liberalization of investment force of this Agreement shall apply to the following sectors
(b) enhanced protection to investors of Member States (MS) (a) manufacturing
investments (b) agriculture
(c) transparency and predictably of investment rules, (c) fishery
regulations and procedures conducive to increase investment (d) forestry
(d) joint promotion of the region as an integrated investment (e) mining and quarrying
area (f) services incidental to manufacturing, agriculture fishery,
(e) cooperation for favorable conditions for investors of a forestry, mining and quarrying; and
MS to other MS (g) any other sectors as they may agree

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
This will NOT apply:
(a) any taxation measures except for Transfers (Article 13) and
Expropriation and Compensation (Article 14)
(b) subsidiaries or grants provided by a MS
(c) government procurement
(d) services supplied in the exercise of governmental authority by the
relevant body or authority of a MS.
(e) measures adopted or maintained by a MS affecting trade in
services under the ASEAN Framework.
For the protection of investment on commercial presence mode of
service supply shall apply mutatis mutandis to any measure affecting
the supply of a service by a service supplier of a MS through
commercial presence:
(1) Treatment of Investment
(2) Compensation in Cases of Strife
(3) Transfers
(4) Expropriation and Compensation
(5) Subrogation
(6) Investment Disputes Between an Investor and MS
Nothing in this Agreement shall affect the rights and
obligations of any MS under any tax convention.
Article 4: Definitions
covered investmentan investment in its territory of an
investor of any other MS in existence as of the date of entry
into force of this Agreement.
free usable currencyfree usable currency according to
IMF
investmentevery kind of asset, (i) owned (ii) controlled
by an investor, including:
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movable and immovable property, mortgages, liens
or pledges
shares, stocks, bonds and debentures
intellectual property rights
claims to money or to any contractual performance
rights under contracts(i) turnkey (ii) construction,
(iii) management (iv) production (v) revenue-sharing
contract
business concessions required to conduct economic
activities and having financial value conferred by
law or contract
Includes amounts yielded by investments, in particular
profits, interest, capital gains, dividend, royalties and fees.
investornatural person or juridical person of MS that has
made or as making an investment
juridical personlegal entity duly constituted or organized
under MS applicable law whether (i) privately-owned (ii)
governmentally-owned (iii) enterprise (iv) corporation trust
(v) partnership (vi) joint venture (vii) sole proprietorship
(viii) association (ix) organization
measuresmeasure of a MS in the form of (i) laws (ii)
regulations (iii) rules (iv) procedures (v) decisions and (vi)
administrative actions (vii) practice, adopted or maintained
by:
(i) central, regional or local government or
authorities
(ii) non-governmental bodies in the exercise of
power delegate by central, regional or LGU
natural personany natural person with nationality of
citizenship or or right of permanent residence in MS
new ASEAN MSmeans Cambodia, Laos, Myanmar,
Vietnam
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
WTOWorld Trade Organizaition
WTO AgreementMarrakesh Agreement Establishing the
World Trade Organization
Article 5: National Treatment
Equal Treatment to InvestorsMS shall accord the same the
treatment to any other MS no less favorable than what it
accords to its own investors.
Equal Treatment to InvestmentsMS shall accord the same
treatment to any other MS no less favorable than that it
accords to investments in its own territory.
Article 6: Most Favored Nation Treatment
Equal Treatment to InvestorsMS shall accord the same the
treatment to any other MS or a non-MS no less favorable
than what it accords to its own investors.
Equal Treatment to InvestmentsMS shall accord the same
treatment to any other MS or a non-MS no less favorable
than that it accords to investments in its own territory.
Article 7: Prohibition of Performance Requirement
Provisions of the Trade-Related Investment Measures in
Anner 1A to the WTO Agreement shall apply, mutatis
mutandis, to this agreement.
Non-WTO members of ASEAN shall abide by the WTO
provision with the accession commitments to the WTO.
Article 8: Senior Management and Board of Directors
MS shall not require that a juridical person of that MS
appoint to senior management positions, natural person of
any nationality
MS may require that majority of the BOD of a juridical
entity be a particular nationality, or resident in the territory
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of the MSmust not impair ability of investor to exercise
control.
Article 9: Reservations
Article 5 (National Treatment) and 8 (Senior Management and
BOD) shall NOT apply to:
existing measure maintained by MS:
central government
regional level of government
local government
continuation or prompt renewal of any reservations under
par. a
MS shall submit reservation list to ASEAN Secretariat
within 6 months of signing the agreement
Article 5 and 6 shall not apply to any measure covered by an
exception to or derogation from the obligation under Art. 3
and 4 of the TRIPS Agreement (Trade-Related Aspects of
Intellectual Property Rights)
Article 10: Modification of Commitments
After date of submission of MS reservation list, a MS may
adopt any measures or modify any reservation made for
prospective investors of any other MS and investments.
After expiration of the period, an MS may by negotiation
and agreement with other MS, adopt measures or modify
commitments and reservation but should not be adverse to
existing investors or investments.
MS shall maintain the general level of reciprocal and
mutually advantageous commitments and reservations NOT
less than favorable to investors and investments.
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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017

MS shall not require investor of other MS by reason of o criminal and penal offenses
nationality, to dispose of an investment existing at the time o financial reporting
the measure becomes effective. o taxation

Article 11: Treatment of Investment
MS shall accord covered investments of investors fair and
equitable treatment and full protection and security.
fair and equitable treatment to not deny justice in
any legal or administrative proceedings.
full protection and security requires each MS to take
such measures reasonable necessary to endure
protection.
Determination of breach of another provision or of a
separate international agreement does not establish that there
has been breach in this article
Article 12: Compensation in Cases of Strife
MS shall accord to investors of other MS which suffered
losses in investments due to armed conflict or civil strife or
state of emergency, non-discriminatory treatment with
respect to restitution, compensation, consideration
Article 13: Transfers
MS shall allow transfers of covered investment freely and
without delay into and out of its territory.
made freely in usable currency at the market rate of
exchange prevailing at the time of transfer
MS may prevent or delay transfer through equitable, non-
discriminatory and good faith application of its laws and
regulations
o bankruptcy, insolvency
o issuing, trading, dealing securities
Nothing will affect the right and obligation of the MS as
members of the IMF provided that MS shall not impose
restrictions on any capital transactions inconsistently with
specific commitments.
Article 14: Expropriation and Compensation
MS shall not expropriate or nationalize a covered investment
directly or through measures equivalent to expropriation or
nationalization except:
o for public purpose
o non-discriminatory manner
o payment of prompt, adequate and effective compensation
o due process of law
compensation
o paid without delay
o FMV
o not reflect any change in value
o fully realizable and transferable
if there is delay, compensation shall include appropriate
interest
this article does not apply to issuance of compulsory
licenses in IP under the TRIPS agreement
Article 15: Subrogation
If MS or agency of a MS makes payment to an investor
under a guarantee, insurance or any form of indemnity the
other MS shall recognize the subrogation or transfer.

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
Where an MS or an agency of an MS makes payment to an
investor of that MS and has taken over the rights, the
investor shall not pursue those rights against other MS
In exercising such rights, a MS or agency of MS shall
disclose the coverage of the claims arrangement with its
investors.
Article 16: Measures to Safeguard the Balance of Payment
In serious balance of payments and external financial
difficulties, an MS may adopt or maintain restrictions on
payment or transfers related to investments.
Such restrictions should be:
o consistent with Articles of Agreement of the IMF
o avoid unnecessary damage to commercial, economic and financial
interests
o not exceed those necessary to deal with the circumstances
o be temporary and phased out progressively as the situation
specified in Par. 1 improves
o be applied; MS is treated no less favorably than any other MS or
non-MS
Any restrictions adopted or maintained under par. 1 or any
changes shall be promptly notified to other MS
To the extent it does not duplicate the process under WTO,
IMF or any other similar processes
Article 17: General Exceptions
Measures should not be applied as means of arbitrary or
unjustifiable discrimination between MS of other investors
o where like conditions prevail or
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o disguised restriction on investors of any other MS and
their investment.
Nothing shall prevent adoption or enforcement by any MS
of measures:
o necessary to protect public morals or maintain public
order
o necessary to protect human, animal or plant life or health
o necessary to secure compliance with law or regulations
which are not inconsistent with this agreement relation to:
prevention of deceptive and fraudulent practices
protection of privacy of individuals
safety
ensure equitable or effective imposition or
collection of direct taxes with respect to investments
imposed protection of national treasures
conservation of exhaustible natural resources if
such measures are made effective.
Article 18: Security Exceptions
Nothing in this Agreement shall:
require MS to furnish information contrary to essential
security interests
prevent MS from taking action necessary to protect
essential security interests
o fission and fissionable materials
o traffic in arms and ammunition and implements of war
o action taken in time of war or other emergency
o action to protect critical public infrastructure
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Article 19: Denial of Benefits
MS may deny benefits of Agreement
an investor of another MS that is a juridical person of such
other MS and investments of investor, if investor of a non-
MS owns and controls the juridical person and the juridical
person has no substantive business operations in the territory
of such other MS.
an investor of another MS that is also a juridical person of
such other MS and investment of such investor, if an
investor of the denying MS owns and controls the juridical
person and other juridical person has not substantive
business operation in the territory of the other MS
an investor of another MS that is a juridical person of such
other MS and to an investment of such investor if investors
of a non-MS own or control the juridical person and they
denying MS does not maintain diplomatic relations with the
non-MS
upon notification, a MS may deny benefits of this agreement
to investor of another MS and to investments if such investor
has made an investment in breach of the domestic laws of
the denying MS by misrepresenting its ownership in areas of
investment reserved for natural or juridical persons o
denying MS.
Article 20: Special Formalities and Disclosure of Information
Nothing in Article 5 (national treatment) or 6 (most-favored
nation treatment) shall be construed to prevent a MS from
adopting measure that prescribes special formalities in
connection with investments. That such investment be
legally constituted or assume certain legal form under the
law of regulations of the MS.
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MS shall protect any confidential information from any
disclosure that would prejudice legitimate commercial
interests or particular juridical persons. Nothing prevents the
MS from obtaining or disclosing information in connction
with equitable and good faith application of its law.
Article 21: Transparency
MS shall:
promptly and at least annually inform the AIA Council of
investment related agreements or arrangements entered into
promptly and at least annually inform AIA of the
introduction of new law or any changes to existing laws of
the MS that affects investments or commitments.
make publicly available all relevant laws, regulations and
guidelines that affect investment of MS
establish or designate an enquiry point where all information
relating to the measures required to be published are made
available.
Nothing shall require MS to furnish or allow access to any
confidential information particular to investors or
investments, disclosure of which would impede law
enforcement or be contrary to public interest.
Article 22: Entry, Temporary Stay and Work of Investors and
Key Personnel
Subject to immigration and labor laws, regulation and
national policies relating to entry, temporary stay and
authorization to work, each MS shall grant entry, stay and
work to investors, executives, managers and BOD of
juridical persons of any other MS for purpose of
establishing, developing, administering or advising operation
in the territory.
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Article 23: Special and Differential Treatment of for the Newer
ASEAN Member States
In order to increase benefits of Agreement for Newer ASEAN MS,
there is an importance for according special and differential
treatment:
technical assistance to strengthen capacity in relation to
investment policies and promotion
commitments in areas of interest to newer ASEAN MS
recognizing commitment by each newer ASEAN MS may be
made in accordance with its individual stage of development
Provide advisory services to the business community of the
Member States
Art. 26: Enhancing ASEAN Integration
In order to enhance ASEAN economic integration, Member States
shall:
Harmonize investment policies, where possible
Strengthen capacity of Member States in formulating
investment policies
Share information on investment policies and best practices
Support investment efforts among Member States

Art. 27 Disputes Between or Among Member States

Art. 24: Promotion of Investment The ASEAN Protocol on Enhanced Dispute Settlement Mechanism
In order to promote the ASEAN as an investment area and to shall apply.
encourage foreign investment and intra-ASEAN investment,
Member States shall: SECTION B Investment Dispute Between an Investor and a
Encourage ASEAN small, medium and multinational Member State
enterprises
Enhance industrial complementation and production Art. 28: Definitions
networks among ASEAN enterprises Appointing authority
Organize investment missions that develop regionals clusters
and production networks Mode of arbitration Appointing authority
Organize seminars on investment opportunities and
investment laws ICSID Convention Secretary General of the ICSID
Conduct exchanges on investment promotion
ICSID Additional Secretary General of the ICSID
Facility Rules
Art. 25: Facilitation of Investment
In order to facilitate investment into and within ASEAN, Member
UNCITRAL Arbitration Secretary-General of the Permanent
States shall:
Rules Court of Arbitration
Create the necessary environment for such investment
Simplify procedures for investment applications and Regional Centers of Secretary-General or the equivalent
approvals Arbitration thereof
Disseminate investment information such as rules and
procedures Other Modes of Secretary-General or the equivalent
Establish one-stop investment centers Arbitrations thereof
Strengthen databases on investments for policy formation
Consult with the business community on investment matters

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Note: the ICSID is the International Center for Settlement of Art. 31: Consultation
Investment Disputes When may consultation be availed of?
Disputing investor o The parties shall do consultation prior to any request
o An investor of a Member State that makes a claim for arbitration.
on its own; or How initiated?
o An investor of a Member State that makes a claim o It shall be initiated by a written request for
on behalf of a juridical person, another Member consultation from the disputing investor to the
State, that the investor owns or controls. disputing Member State.
Disputing Member State When shall it be held?
o A Member State against which a claim is made o It shall commence within 30 days of the receipt of
Disputing parties the written request for consultation
o A disputing investor and a disputing Member State The disputing investor shall provide the disputing Member
Non-disputing Member State State information regarding the legal and factual basis for the
o The Member State of the disputing investor investment dispute, prior to the consultation.
Art. 32: Claim by an Investor of a Member State
Art. 29: Scope of Coverage When may a claim be availed of?
o When an investment dispute has not been resolved
Within the Scope Outside the Scope
within 180 days of the receipt of request for
Investment disputes between a Natural persons consultation
Member State and an investor, Claims arising What are the requisites of an investment dispute?
of another Member State, who from event prior o The breach was of an obligation arising from:
incurred loss by reason of a to the entry into Article 5 (National Treatment)
breach of a right conferred by force of this Article 6 (Most-Favored-Nation-Treatment)
this Agreement Agreement Article 8 (Senior Management and Board of
Directors)
Note: A disputing investor may still seek administrative or judicial Article 11 (Treatment of Investment)
relief within the country of the disputing Member State. Article 12 (Compensation in Cases of Strife)
Article 13 (Transfers)
Art. 30: Conciliation Article 14 (Expropriation and
When may it be availed of? Compensation)
o The parties may opt for conciliation at any time, o The disputing investor incurred loss by reason of the
even during the pendency of arbitration. breach.
How terminated?
o The disputing investor may terminate the
conciliation at any time.
Effect?
o The positions taken during conciliation shall not
prejudice either in any further proceedings.

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Art. 33: Submission of a Claim o Name of the arbitrator the disputing investor
How is a claim submitted? appoints; or
o The disputing investor submits a claim to: o The disputing investors written consent for the
Appointing Authority to appoint that arbitrator.
Mode of Arbitration Requirement

Tribunals of the disputing Provided they have jurisdiction Article 34: Conditions and Limitations on Submission of a Claim
Member State over the dispute What are the conditions on the submission of a claim?
o It must be submitted within 3 years after the
ICSID Rules of Procedure for Both the disputing Member State disputing investor became aware or should
Arbitration Proceedings and the non-disputing Member reasonable have become aware, of the breach.
State are parties to the ICSID o The disputing investor must have given written
Convention notice of arbitration to the disputing Member State
at least 90 days before the claim is submitted.
ICSID Additional Facility Rules Either the disputing Member o The notice should be accompanied by the disputing
State or non-disputing Member investors written waiver of the right to institute or
State are parties to the ICSID continue dispute settlement procedures under Art.
Convention 32.
The disputing investor is not prevented from initiating or
UNCITRAL Arbitration Rules continuing an action that seeks interim measures which
preserves his rights as long as it does not involve the
Regional Center for Arbitration payment of damages nor does it resolve the matter in dispute
at Kuala Lumpur or any other before the tribunal.
regional center for arbitration in A non-disputing Member State shall not give diplomatic
ASEAN protection or bring an international claim on behalf of the
NOTE: Resort to any arbitration rules mentioned shall exclude disputing investor when the disputing parties have submitted
resort to the others. the dispute to arbitration
When is a claim deemed submitted? o Exception: The disputing Member State has failed to
o When the disputing investors notice of arbitration is comply with the award.
received under the applicable arbitration rules. o Diplomatic protection shall not include informal
What are the applicable rules during arbitration? diplomatic exchanges to facilitate a settlement.
o The arbitration rules shall govern the arbitration A disputing Member State shall not assert as a defense that
except to the extent modified by this Agreement and the disputing investor may receive indemnification for the
by written agreement of the disputing parties. The alleged loss through a guarantee or insurance contract.
tribunals established under this Section and their
arbitrators are bound by such rules. Article 35 Selection of Arbitrators
What shall be submitted with the notice of arbitration? How shall the arbitrators be selected?
o The tribunal shall comprise of 3 arbitrators; unless
the disputing parties agree otherwise:

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One shall be appointed by each of the
disputing parties
The third shall be appointed by agreement of
the disputing parties and shall be the
presiding arbitrator. He should be a national
of a non-Member State which has
diplomatic relation with both the disputing
Member State and non-disputing Member
State. He should not permanently reside in
either State as well.
o The arbitrators shall have experience in public
international law, international trade or international
investment rules.
o The Appointing Authority shall appoint the
remaining arbitrators, upon request of either
disputing party, if after 75 days from the submission
to arbitration, the tribunal has not been constituted.
Who shoulders the cost of the tribunal?
o The disputing parties shall bear the cost of their
respective arbitrators and equally share that of the
presiding arbitrator and other relevant costs.
o The disputing parties may establish rules relating to
expenses incurred by the tribunal.
What happens if an arbitrator resigns or becomes unable to
act?
o If an arbitrator resigns or becomes unable to act, a
successor shall be appointed in the same manner as
that of the original arbitrator and the successor shall
have the power and duties of the original.
The tribunal shall decide by majority vote.
Article 36: Conduct of the Arbitration
What are preliminary matters the tribunal must decide on
first?
o The tribunal shall decide jurisdictional and
admissibility issues raised before proceeding to the
merits.
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o A disputing Member State may file an objection that
the claim is manifestly without merit within 30 days
from the constitution of the tribunal. The disputing
Member State may also file an objection to the
jurisdiction or competence of the tribunal.
o The disputing parties shall be given a reasonable
opportunity to present their views.
What is the effect if the claim is manifestly frivolous?
o The tribunal may award the prevailing party the cost
for submitting or opposing the claim if the claim or
objection was frivolous or manifestly without merit.
The tribunal shall provide the disputing parties
reasonable opportunity to comment.
Where is the place of arbitration?
o The tribunal shall determine the place of arbitration
in accordance with the applicable arbitration rules;
unless, the disputing parties agree otherwise.
What if the investment dispute pertains to a tax matter?
o If the investment dispute may be a taxable measure,
the disputing Member State and non-disputing
Member State shall hold consultations with the
representative of their tax administrations to
determine such.
o If the disputing investor claims that the disputing
Member State breached Article 14 (Expropriation
and Compensation) by a tax measure, the disputing
Member State and non-disputing Member State shall
hold consultations with the representative of their
tax administrations to determine if the tax measure
has an effect equivalent to expropriation or
nationalization.
o The tribunal shall accord serious consideration to the
decision of the Member States in par. 6 and 7.
o If the Member States fail to initiate consultations
referred to par. 6 and 7 within 180 days from the
request for consultation, the disputing investor may
submit his claim to arbitration.
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Article 37: Consolidation o The tribunal shall request a joint interpretation of a

If two or more claims, submitted separately, have a common provision of this Agreement. The Member States
question of fact or law, and arise out of the same events, all shall submit the interpretation within 60 days of the
concerned parties may agree to consolidate these claims. delivery of the request. This shall bind the tribunal.
o If the Member States fail to do so, any interpretation
Article 38: Expert Reports submitted by a Member State shall be considered by
Without prejudice to the applicable arbitration rule, the tribunal may the tribunal.
appoint experts to report on factual issues concerning environment,
public health, safety or other scientific matters raised in a Article 41: Awards
proceeding, subject to the terms agreed upon by the disputing parties. What may the tribunal award?
o Monetary damages
Article 39: Transparency of Arbitral Proceedings o Restitution of property, in which case the disputing
The disputing Member State may make available publicly all Member State may pay monetary damages in lieu of
awards and decisions by the tribunal. restitution
What if confidential information is submitted to the tribunal? o Costs and attorneys fees
o A disputing party who intends to use confidential What may the tribunal not award?
information shall advise the tribunal. o Punitive damages
o The tribunal shall arrange to protect such The award shall have no binding force except between the
information from disclosure. disputing parties with respect to the case.
o The tribunal shall not require a Member State to give When may the award be enforced?
information which would impede law enforcement
or be contrary to the Member States law or be
Mode of Arbitration When Enforceable
contrary to its security.
The non-disputing Member State shall be entitled to receive ICSID Convention 120 days from the award and
a copy of the notice of arbitration from the disputing no request for revision or
Member State no later than 30 days after the receipt of the annulment; or
disputing Member State. The disputing Member State shall Revision or annulment
notify the other Member States of the notice for arbitration proceedings have been
within 30 days from receipt. completed
Article 40: Governing Law ICSID Additional 90 days from the award and
What is the governing law? Facility Rules no proceeding for revision,
o The tribunal shall decide the issues in accordance UNCITRAL setting aside, or annulment of
with this Agreement, other agreements between the Arbitration Rules the award; or
Member States, international law, and, if applicable, The Regional A court has dismissed or
the domestic law of the disputing Member State. Centers allowed an application to
What if there is an issue with the interpretation of the revise, set aside, or annul the
provisions of this Agreement?

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award and there is no further
appeal
A claim submitted for arbitration shall be considered to arise
out of a commercial transaction.
Each Member State shall provide for the enforcement of an
award in its territory.
SECTION C
Article 42: Institutional Arrangements
The AIA Council shall be responsible for the
implementation of this Agreement
The ASEAN Coordinating Committee on Investment (CCI)
shall assist the AIA Council. It shall report to the AIA
Council through the Senior Economic Officials Meeting
(SEOM). The ASEAN Secretariat shall be the Secretariat of
the AIA Council and CCI.
The AIA Council shall:
o Provide policy guidance on investment matters
o Oversee the implementation of this Agreement
o Update the AEM on the implementation of this
Agreement
o Recommend to the AEM any amendments to this
Agreement
o Facilitate the settlement of disputes arising from the
Agreement
o Adopt necessary decisions; and
o Carry other functions the AEM may agree
Article 43: Consultations by Member States
The Member States agree to consult each other, upon request of
other Member States, regarding matters covered by this Agreement.
Article 44: Relation to Other Agreements
This Agreement shall not derogate from the rights and obligations of
a Member State under other international agreements.
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Article 45: Annexes, Schedule and Future Instruments
The Annexes, Schedule and all future legal instruments pursuant to
this Agreement shall form an integral part of this Agreement.
Article 46: Amendments
The provisions of this Agreement may be modified through
amendments mutually agreed upon in writing by the Member States.
Article 47: Transitional Arrangements Relating to the ASEAN
IGA and the AIA Agreement
The entry into force of this Agreement shall terminate the
ASEAN IGA and the AIA Agreement.
The Temporary Exclusion List and the Sensitive List shall
apply to the liberalization provisions of ACIA until the
Reservation List of the ACIA comes into force.
With respect to investments falling within the ambit of this
Agreement, ASEAN IGA and the AIA Agreement, the
investor may choose to apply the provisions of any of these
agreements in its entirety for a period of 3 years from the
termination of the ASEAN IGA and the AIA Agreement.
Article 48 Entry into Force
This Agreement shall enter into force after all Member
States have notified or deposited instruments of ratification
with the Secretary General of the ASEAN, which should
take place not more than 180 days after the signing of this
Agreement.
The Secretary General shall inform each Member State of
the notification or the deposit of the instrument of
ratification of each Member State.
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V. ASEAN Framework on Services
ASEAN Economic Blueprint (Refer to Part IV)
ASEAN Framework Agreement on Services
Aris: This is not an ASEAN-X Agreement. It applies to all ASEAN
Members.
Signatory States
Singapore, Thailand, Indonesia, Malaysia, Philippines, Brunei
(STIMP-B), and Vietnam
Prefatory Statements
*Singapore Declaration of 1992: Move towards a higher plane of
economic cooperation to secure regional peace and prosperity
*Fourth Summit held in Singapore on 27-28 January 1992: an AFTA
shall be established in the region
*Framework Agreement on Enhancing ASEAN Economic
Cooperation signed in Singapore on 28 January 1992: Explore
measures on border and non-border areas of cooperation to
supplement and complement the liberalisation of trade
*Secure a liberal trading framework for trade in services which
would strengthen and enhance trade in services
*Mobilise the private sector in the realisation of economic
development of ASEAN Member States in order to improve the
efficiency and competitiveness of their service industry sector
*Article V of GATS permits the liberalising of trade in services
between or among the parties to an economic integration agreement
*Member States shall extend to one another preference in trade in
services
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Objectives
*Enhance cooperation in services in order to improve the efficiency
and competitiveness, diversify production capacity and supply and
distribution of services of their service suppliers within and outside
ASEAN
*Eliminate substantial restrictions to trade in services
*Liberalise trade in services by expanding the depth and scope of
liberalisation beyond those undertaken by Member States under the
GATS with the aim to realising a free trade area in services
Areas of Cooperation
*All Member States shall participate in the cooperation
arrangements, but two or more Member States may proceed first if
other Member States are not ready to implement these arrangements
*Strengthen existing cooperation efforts in service sectors and
develop cooperation in sectors that are not yet covered by:
-establishing or improving infrastructural facilities;
-joint production, marketing and purchasing arrangements;
-research and development; and
-exchange of information.
*Identify sectors for cooperation and formulate Action Plans,
Programmes and Understandings that shall provide details on the
nature and extent of cooperation.
Liberalisation
Liberalise trade in services in a substantial number of sectors within
a reasonable time-frame by:
*eliminating substantially all existing discriminatory measures and
market access limitations amongst Member States; and
*prohibiting new or more discriminatory measures and market
access limitations.
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Aris: This is a hard obligation. Note that there is really a deadline
but it might differ per country.
Negotiation of Specific Commitments
*Members should negotiate on measures affecting trade in specific
service sectors
*Aim of negotiations: (1) to achieve commitments which are beyond
those included in the schedule of specific commitments under the
GATS; (2) pursuant to these commitments, Members shall be
entitled to the benefits of MFN
*The AFAS shall not be construed as to prevent any Member from
conferring advantages to adjacent countries in order to facilitate
exchanges limited to contiguous frontier zones of services that are
both locally produced and consumed
Aris: This is also a hard obligation.
Mutual Recognition
*A Member may recognise (by agreement or arrangement, or
accorded autonomously) the following qualifications granted in a
Member State for the purpose of licensing or certification of service
suppliers:
-education
-experience
-requirements met
-licenses
-certifications
*But Members are not to accord recognition
Denial of Benefits
The benefits of the AFAS shall not be extended to citizen of a Non-
Member State, whether natural or juridical (owned or controlled by
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persons of a Non-Member/ not engaged in substantive business in
the territory of a Member State)
Aris: This is a hard obligation. Note that this provision is a
Barcelona Traction kind of situation. If there is no nationality link
between the place of incorporation and the place of business, then
benefits can be denied under the AFAS. You can use your Nationality
Link Rule here.
Settlement of Disputes
*First Option: The Protocol on Dispute Settlement Mechanism for
ASEAN (any disputes arising from, or any differences concerning
the interpretation or application of AFAS or any agreement arising
from it)
*Second Option: Specific dispute settlement mechanism (will be an
integral part of AFAS)
Supplementary Agreements or Arrangements
*Schedules of specific commitments and Understandings arising
from subsequent negotiations and any other agreements or
arrangements, Action Plans and Programmes shall form an integral
part of this Framework Agreement
Other Agreements
*The AFAS or any action taken pursuant to it shall not affect rights
and obligations under pre-existing agreements of Members
*Members may enter into agreements not contrary to AFAS
*Upon signing this agreement, Members shall promptly notify
ASEAN Secretariat of any agreements concerning trade in services
to which they are signatories.
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Modification of Schedules of Specific Commitments
*A Member can modify/withdraw any commitment in the schedule
at any time after three years from the date on which the commitment
entered into force provided:
-notifies Member States and ASEAN Secretariat three months before
the intended date of implementation of the modification/withdrawal;
and
-it negotiates with the affected Member to agree to necessary
compensatory adjustment
*The compensatory adjustment shall not be less favourable to trade
than that provided for in the schedules prior to such negotiations
*Compensatory adjustment shall be made on an MFN basis
*The SEOM with the endorsement of the AEM may draw up
additional procedures to give effect to this Article
Institutional Arrangements
*The SEOM shall carry out such functions to facilitate the operation
of the AFAS and further its objectives, including:
-organisation of the conduct of negotiations
-review and supervision of the implementation of this Framework
Agreement.
*The ASEAN Secretariat shall assist SEOM in carrying out its
functions, including providing the support for supervising,
coordinating and reviewing the implementation of this Framework
Agreement.
Amendments
The provisions of AFAS may be amended through the consent of all
the Members and such amendments shall become effective upon
acceptance by all Members
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Accession of New Members
New Members of ASEAN shall accede to AFAS on terms and
conditions agreed between them and signatories to AFAS
Final Provisions
*The terms and definitions and other provisions of the GATS shall
be referred to and applied to matters arising under AFAS for which
no specific provision has been made under it
*Deposited with the Secretary-General of ASEAN; SecGen shall
promptly furnish a certified copy to Member
*This AFAS shall enter into force upon the deposit of instruments of
ratification or acceptance by all signatory governments with the
Secretary-General of ASEAN
Signed in Bangkok on December 15, 1995 in a single copy in the
English Language
Aris: Remember there is a 2003 Protocol to Amend AFAS. It is an
example of how the parties intend to deviate from the MFN.
Atty. Quicho: What are ASEANs strengths, weaknesses,
opportunities, and threats? Remember these.
Strengths
Strategic Location
Dynamic and Robust Economic Benefits
Huge market it presents to Non-Members
Weakness
AEC Blueprint: Developmental gaps among the ASEAN Members
Opportunities
Opportunities in terms of partners (this can also be a threat)
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Threats VI. Case Study: Vietnam

Provisions that allow for the application of the ASEAN-X Provision
Opportunities in terms of partners Aris L. Gulapa, Making Vietnam's WTO
Political security Commitments in Services Relevant to the Filipino
Investor: Restrictions, Remedies, and
Recommendations in Respect of Structuring
Philippine Investments, 53 Ateneo L. J. 655 (2008)

INTRODUCTION
With the realization that the Philippine market may soon
become saturated, Filipino investors have begun investing abroad,
particularly in emerging markets.
o One of these markets: Vietnam
o As of September 2006: there were at least 28 Philippine
companies operating in Vietnam
o Due to Vietnams accession to the WTO on January 11,
2007, this figure is expected to grow
The article is limited to discussions on the restrictions
relating to foreign ownership.

VIETNAMS INVESTMENT REGULATORY FRAMEWORK:

AN INTERFACE BETWEEN WTO COMMITMENTS AND MUNICIPAL
LAW

A. SUPERIORITY OF TREATY LAW

Analysis of the interplay between treaty and municipal law is
essential since the investment regime in Vietnam is largely a
matter of treaty law.
Monist v Dualist approach
o Monist there is but one system of law, with International
Law as an element alongside all the various branches of
domestic law

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International law is simply part of the law of the
land, together with national law
o Dualist there are two essentially different legal systems,
and they exist side by side within different spheres of
action
o Some systems are hybrids of these two
Vietnam is primarily a MONIST state, but in an evolved
model.
o Because of the doctrine of supremacy, the norm, which by
virtue of the doctrine of direct effect must be regarded as
part of the Law of the Land, will prevail even in these
circumstances.
o The norms therefore that produce direct effects are not
merely the Law of the Land, but the Higher Law of the
Land.
o Vietnam therefore recognizes the superiority of treaty
Law whether or not the treaty is prior or posterior to
a conflicting domestic law.
But this is not the same with respect to Customary
International Law.
Law on Promulgation of Legal Instruments: domestic legal
instruments shall be applicable to foreign bodies, organizations,
and individuals in Vietnam, except as otherwise stipulated in
international treaties to which Vietnam is a party or signatory.
o Article 2(3) of the Civil Code: states that such Code
applies to civil relations involving foreign elements,
unless otherwise provided for by the treaties
o Article 5(1) of the Commercial Law: states that were a
treaty contains provisions different from those of the
Commercial Law, the provisions of the treaty shall
prevail
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o Article 3(3) of the Enterprise Law: in case of conflict,
treaty provisions shall be applied
With respect to CUSTOMARY INTERNATIONA LAW,
the attitude of the law is different.
o Custom may only be applied in Vietnam to the extent that
they do not conflict with Vietnams domestic legal
principles.
B. SOURCE OF INVESTMENT RESTRICTIONS
The first step in determining the conditions that apply to
foreign investment is to look at the provisions of international
treaties to which Vietnam is a party.
In the absence of such conditions, one may resort to domestic
law.
In cases of conflict, the conditions under the treaties shall
prevail.
If there is no inconsistency, the conditions under both sources
must be reconciled to the extent possible, with the conditions
under domestic law being supplementary to the treaty conditions.
C. INVESTMENT RESTRICTIONS
Foreign organizations may invest in Vietnam, except where
the investment is prohibited.
o In certain sectors, investment is subject to conditions
which must be satisfied in order that the investor may be
allowed to carry out its activities in Vietnam.
Again, the first document to look into is the relevant
international treaty, i.e. the schedule of Vietnams commitments
in services to the WTO
1. Definition of Investment
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Foreign investment: the remittance of capital in monies and other authorized by Vietnams competent
lawful assets by a foreign investor into Vietnam in order to carry out authority.
an investment activity. * The unless clause seems to
The Law on Investment provides for two types: be a renvoi to Vietnams
(a) Direct investment: a form of investment whereby the domestic law, which however
investor invests its capital and participates in the provides that treaty provisions
management of the investment activity prevail over domestic laws
Includes the establishment of an enterprise, entry v Exception to the treaty prevailing domestic
into contracts, build-operate, build-transfer- law: in case a law containing favorable
operate, build-transfer, investment in business provisions is issued subsequently, the
development, purchase of shares or contribution foreign investor will be entitled to
of capital in order to participate in the choose between the provisions of the
management of the investment domestic law and the relevant treaty.
(b) Indirect investment: a form of investment by way of From 11 January 2008, the 30% restriction was to
purchase of shares, bonds, or other valuable papers, be lifted, pursuant to Vietnams WTO
whereby the investor does not participate directly in the Commitments in Services, except for joint-stock
management of the investment commercial banks and sectors not listed in the
The distinction between the two however, is more apparent than Commitments.
real, since both types are covered by relevant restrictions. Decree 139 (issued on 5 September 2007):
intended to repeal an old governmental decision,
2. Sectors covered by the WTO which previously imposed a 30% cap on the
a) Horizontal Commitments acquisition of shares by foreign investors
v This decree, coupled with Vietnams WTO
(i) On Existing Vietnamese Enterprises Commitments expressly stating that such
Vietnam imposed a cap on the permissible 30% cap will be lifted, should suffice to
shareholding that may be acquired by foreign concluded that the 30% horizontal
investors in an existing Vietnamese enterprise. commitment is no longer applicable.
v Under its WTO Commitments in Services, For sectors not committed by Vietnam to the
foreign investors are allowed to WTO, the level of ownership shall be governed
acquire a maximum of 30% of the by Vietnams domestic laws.
charter capital of an existing
Vietnamese enterprise, unless otherwise
provided for by Vietnam laws or

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(ii) Listed Enterprises
Listed enterprises continue to be governed by
Vietnams domestic laws.
Decision 238 and Circular 90 provide that foreign
organizations and individuals selling and
purchasing securities or investment funds
certificates at securities trading centers may hold
a maximum of 49% of the total number of
shares or investment fund certificates of any one
organization registered for trading
(iii) Foreign Participation, in general
Foreign organizations and individuals are
allowed to participate in the establishment of
enterprises in Vietnam.
Its WTO Commitments in Services provide that,
unless otherwise specified therein, foreign
enterprises are allowed to establish
commercial presence in Vietnam in the form
of business cooperation contract, joint venture
enterprise, and 100% foreign-invested
enterprise.
Representative offices of foreign service
suppliers are permitted to be established in
Vietnam, provided that they shall not engage in
any direct profit-making activities.
The establishment of branches is NOT
PERMITTED, unless otherwise indicated in
the sector specific commitments.
b) Sector Specific Commitments
The sectors which Vietnam commited to the WTO may be classified
into three: (i) sectors where a wholly foreign owned enterprise is
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permitted to be established by foreign investors; (ii) sectors where
only a joint venture enterprise with a Vietnamese party or
parties is permitted to be established on a delayed basis; and (iii)
sectors where only a JVE is permitted to be established with the
establishment of a WFOE barred.
(i) Wholly Foreign Owned Enterprise (WFOE)
Establishment of a WFOE in Vietnam in the following sectors is
allowed:
(MATH & LART C2RU, BISH) (Ito na best mnemonic na naisip
ko guys, sorry. Haha.)
Management and consultant services;
Accounting, auditing, and bookkeeping services;
Taxation services;
Hotel and Restaurant Business
Legal services
Architectural services, engineering services,
integrated engineering services;
Research and development services;
Technical testing and analysis services;
Computer and related services;
Construction and related engineering works;
Rental/leasing services without operators;
Urban planning and urban landscape architectural
services;
Banking and other financial services;
Insurance;
Securities; and
Health related and social services.
(ii) Joint Venture Enterprises (JVEs) with delayed establishment of
WFOE
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After transitional period, a WFOE will be permitted (although Internal waterways transport;
presently, only JVEs are allowed) to be established in the following Road transport services;
sectors: Services incidental to agricultural, hunting, and
(S5M3 FED ROC2H) forestry;
Securities; Travel agencies and tour operator services;
Services related to management consulting; Container handling services;
Services incidental to mining; Customs clearance services;
Services incidental to manufacturing; Container handling services;
Supply of international maritime transport Virtual Private Network;
services Value-added telecommunication services;
Market research activities; Basic telecommunication services;
Maintenance and repair of equipment; Advertising services;
Maintenance and repair of aircraft; Audio-visual services;
Franchising services; Entertainment services; and
Environmental services; Electronic games business.
Distribution and trading services;
Related scientific and technical consulting NB: The foregoing commitments, however, are subject to certain
services; MFN exemptions.
Other services auxiliary to all modes of transport;
Courier services; 3. Sectors NOT covered by WTO
Container station and depot services, storage, and o Non-inclusion in Vietnams WTO Commitments in
warehouse services, and freight transport Services does NOT mean that no foreign ownership
agency services; and restrictions apply to them.
Higher education services, adult education, other o This only means that foreign ownership restrictions will
education services. be provided for in Vietnams domestic laws.

(iii) JVE only and WFOE barred Article 30 of the Law on Investment provides for a list of sectors
Notwithstanding Vietnams WTO Commitments in Services, only a in which foreign and domestic investment is prohibited:
JVE may be established, and no transitional period for the o Projects which are detrimental to national defense,
establishment of WFOEs is provided for, in the following sectors: security, and public interests;
(FI2RST C3V2 BA2E2) o Projects which are prejudicial to historical or cultural
Freight transport services by rail; relics, Vietnamese culture, morals, or fine customs;
Internet Access Services;

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ASEAN II MIDTERM REVIEWER, S.Y. 2016-2017
o Projects which may cause harm to peoples health, destroy
natural resources, or the environment; and
o Projects on the treatment of hazardous wastes brought
from outside into Vietnam or production of toxic
chemicals or use of toxic agents banned under treaties.
Article 29 of the Law on Investment enumerates the following
sectors where both foreign and domestic investments are
SUBJEC TO CONDITIONS:
o Sectors impacting national defense and security, social
order, and safety;
o Banking and finance sector;
o Sectors and impacting public health;
o Culture, information, the press, and publishing;
o Entertainment services;
o Real estate business;
o Survey, prospecting, exploration, and mining of natural
resources, and the ecological environment;
o Development of education and training; and
o A number of other sectors in accordance with law.
Appendix III of Decree 108 provides the following list of
investment sectors in which foreign investment is SUBJECT
TO CONDITIONS:
o Broadcasting and television;
o Production, publishing, and distribution of cultural
products;
o Exploitation and processing of minerals;
o Establishment of infrastructures for telecommunications
networks, transmission and provision of internet and
telecommunication services;
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o Establishment of public postal networks and provision of
postal services and delivery services;
o Construction and operation of river ports, sea ports,
airports and airfields;
o Transportation of goods and passengers by rail, air, land,
sea, and inland waterways;
o Catching of marine resources;
o Production of cigarettes
o Real estate business;
o Investment in import, export, and distribution;
o Education and training;
o Hospitals and clinics; and
o Other investment sectors in international treaties of which
Vietnam is a member and which restrict the opening of
the market to foreign investors.
D. INVESTMENT VEHICLES
Whatever type of economic vehicle a foreign investor will set
up in Vietnam will necessarily be affected by the foreign
ownership restrictions discussed in the preceding section.
o For example: for sectors where 100% foreign ownership is
permitted, (1) a single foreign investor may set up a one-
member limited liability company, or (2) two or more
investors may set up limited liability company with two
or more members; or (3) at least three foreign investors
may set up a joint stock company.
1. One-member Limited Liability Company (LLC)
An enterprise owned by only one individual or organization
Has separate and distinct legal personality from the investor
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Investor is liable for all debts and other property obligations of the
One-Member LLC to the extent of the charter capital of the One-
Member LLC
2. LLC with Two or More members
An enterprise with 2-50 members (may be individuals or
organizations
Also has a separate legal personality from its members
Members are liable for debts and other obligations of the enterprise
within the amount of capital they have committed to contribute
3. Joint Stock Company
An enterprise whose charter capital is divided into equal portions
known as shares
Must have at least three shareholders (may be organizations or
individuals)
Also has a legal personality separate and distinct from its
shareholders
Shareholders shall be liable for debts and other property obligations
of the enterprise within the value of their respective capital
contributions
Similar to a corporation in the Philippines
4. Partnership
An enterprise created by at least two unlimited liability partners
who are co-owners of the company jointly conducting their
business under one name
May also be limited partners who are liable for the debts of the
partnership only to the extent of their capital contribution
o Unlike unlimited liability partners who are liable for
all obligations of the partnership to the extent of all
their assets
Has separate legal personality from its partners
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5. Private Enterprise
Owned solely by an individual
Similar to a One-Member LLC, but a private enterprise does NOT
have a separate legal personality from that of the owner
Owner of private enterprise is liable to the extent of all his assets
(as opposed to a One-Member LLC where investor is only liable to
the extent of the charter capital)
Any individual may establish only one private enterprise
6. Branch
Establishment of a branch must be in accordance with Vietnams
undertakings in international treaties
With respect to commercial activities involving the purchase and
sale of good, the Commercial Law states that a branch may:
o Lease office premises and residential
accommodation;
o Hire local and foreign staff;
o Enter into contracts in Vietnam (in accordance with
the activities stated in its license);
o Open bank accounts in Vietnam strictly for its own
day to day administrative operational expenses;
o Remit profits abroad; and
o Conduct activities being the purchase of goods and
other commercial activities consistent with its
license.
7. Representative Office
Permitted to established in all investment sectors
Entitled to:
o Act as a contact or liaison office;
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o Accelerate the formulation of projects of the parent
company;
o Conduct market research to promote opportunities for
purchase and sale of goods and services of the parent
company; and
o Monitor and activate performance of contracts
between the parent company and Vietnamese
parties, or those relating to Vietnamese markets
In its operations, a representative office may:
o Employ local and foreign staff;
o Rent office premises and residential accommodation;
o Open bank accounts in Vietnam strictly for its own
day to day administrative operational expenses; and
o Import into Vietnam assets needed for the office
operation of the representative office and re-export
the same at the termination of its operations
SOME ISSUES IN STRUCTURING PHILIPPINE
INVESTMENTS
A. ESTABLISHMENT OF AN SPC FOR PURPOSES OF
INVESTMENT
Since the Philippines is WTO member-State, Philippine
investors are entitled to invoke Vietnams WTO Commitments in
Services when they apply for a license to do business in Vietnam.
But is also common for foreign investors to structure the
investment in the most tax-efficient manner.
O Accordingly, investors set up a special purpose company
(SPC) in the form of an offshore company in certain
territories which are considered to be tax havens.
A potential problem to the Filipino investor is when the tax
haven chosen is not entitled to the WTO provisions.
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Illustration: Case of British Virgin Islands (BVI)
o BVI is an overseas territory of the UK and Her Majestys
Government (HMG) is responsible for BVIs external
relations.
o Two schools of thought as to whether BVI is entitled to
invoke WTO commitments of a WTO member:
a) That BVI companies are entitled to such
commitments because it is a mere extension of
the UK
v Some trade representatives suppor the
claim that British Overseas Territories
are automatically subject to the UKs
WTO commitments; therefore,
conversely, the same territories should be
entitled to the commitments of other
WTO members
v In JP Morgan v. Traffic Stream: SCOTUS
recognized that a corporation organized
under the laws of BVI is a citizen of the
UK
b) That BVI companies are NOT entitled to the
WTO commitments of other WTO members by
virtue of the fact that BVU is not a member of
the WTO
v Appears to be more supported under
International Law and the WTO system
v First, HMG conducts the external affairs
of the BVI; thus, HMG could have easily
extended the BVI WTO membership, but
it has not.
v Second, the WTO is not only limited to
States but may include other non-State
members.
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v Re the case of JP Morgan v. Traffic
Stream: such pronouncement was made
only for the purpose of determining the
district courts jurisdiction over a BVI
company under the Alienage Diversity
Statute and does not squarely address the
issue at hand
o Vietnamese authorities have conflicting positions:
Its Ministry of Planning and Investment opines that
BVI companies established by investors from a
WTO-member country are entitled to Vietnams
WTO Commitments in accordance with the
grandfather rule.
Nonetheless, this poses a problem for WTO-based
investments as the opinion of the Ministry of
Trade is generally required in the approval of
investments in sectors committed to the WTO,
being conditional sectors.
Thus, where a Filipino investor seeks to use an SPC for
purposes of tax efficiency, such investor should establish its SPC
in a tax haven which is a member of the WTO.
B. MAXIMIZING THE FOREIGN OWNERSHIP COP
Foreign investors wish to invest in a sector to the maximum
extent allowed for foreign participation as they would want to
take the larger piece of the pie in both profitability and decision-
making aspects.
o But at the same time, investors do not have the luxury of
time to wait until the relevant sector is entirely open to
foreign investors.
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How then do we structure the investment in light of the foregoing
considerations?
The answer depends on the investment vehicle used:
1. For LLC
Aricle 41(1)(F) of the Enterprise Law: members of a LLC with two
or more members have the right to be given priority in contributing
additional capital when the company increases its charter capital.
There is a pre-emptive right granted to existing members of LLCs.
To trigger the increase in capital: an express provision requiring the
enterprise to increase the capital of the LLC in parallel with the
transitional period in Vietnams WTO Commitments may be
included in the parties Joint Venture Agreement.
A waiver of the pre-emptive right must also be obtained from the
Vietnamese party.
o This allows the foreign investor to increase its
shareholding to the maximum extent possible
under Vietnams WTO Commitments in
Services.
If the foreign investor desire to wholly own such LLC, further
structuring is needed.
o The LLC may be converted into a WFOE, pursuant
to Decree 101.
o The conversion could be made possible by providing
an exit mechanism provision in the JVA
exercisable at the time when Vietnams WTO
Commitments permit 100% foreign ownership in the
relevant sector.
o Once triggered, the Vietnamese party will not be able
to avoid this obligation by transferring its interest to
a third party because a right of first refusal is also
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granted by the Law on Enterprises to the other
member of the LLC.
2. For Joint Stock Company
Not problematic in terms of granting the foreign investor the
right to subscribe to additional shares
Article 79 of the Law on Enterprises: grants shareholders the
pre-emptive right to any additional issuance of shares
Law on Securities: permits the issuance of share purchase
rights to ensure that existing shareholders will be entitled to
subscribe to additional shares.
An issue results from compelling the Vietnamese
shareholders to transfer their shares to the foreign investor.
o Law on Enterprises: shareholders may freely assign their
shares, EXCEPT that:
(a) Voting preference shareholders may not assign such
shares to other persons; and
(b) Ordinary shares of founding shareholders may only
assign their shares to persons who are not founding
shareholders if the same is approved by the General
Meeting of Shareholders.
Unlike LLC members, the law does not expressly give the
right of first refusal to shareholders in a joint stock company.
However, Article 8(1) of the Model Charter for Joint Stock
Companies seems to allow a joint stock company to provide for
other restrictions in the charter of the joint stock company,
including the right of first refusal.
C. REPRESENTATIVE OFFICE AS AN INTERIM MEASURE
Most Philippine investors do not wish to deal with
Vietnamese partners, and would prefer to set up a WFOE.
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o One way to address this concern: establish a representative
office while awaiting the opening of the relevant sector to
100% foreign ownership.
Representative office is not permitted to directly conduct
profit-making activities.
o Hence, (except those covered by tax treaty stipulations) it
will not be liable to pay taxes.
Unlike in the Philippines, a representative office in Vietnam
is not required to register for tax purposes (although the chief
of the representative office is required to register for purposes of
personal income taxation).
EXCEPTIONS where the representative office will be subject
to tax in Vietnam:
(a) Where the representative office conducts revenue-
generating activities such as delivery of goods or
services; and
(b) Where the chief of the representative office is authorized
to sign contracts on behalf of the foreign investor.
This is in accordance with the Enterprise Tax
Law.
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