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The Investment Regime in ASEAN Countries(1)

Dr. Lawan Thanadsillapakul *

Introduction

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

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

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

restrictions on entry and establishment;

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

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

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

Table 1

Summary of the Regulations of FDI in ASEAN Countries

Countries/Laws Limitation Restriction on Restricted Performance Tax Incentives

of Land Sector Requirements
Ownership Ownership
Indonesia subject to three types 23 restricted local content priority
Law No. 1, negative of land rights sectors and requirements sectors,
1967 lists available 12 prohibited and export Pioneer
Law No. sectors, performance Industries
11,1979 (Law No.1 (Presidential including requirements
Law of 1967, Decree No. retail and in various ( Law No. 6,
No.6,1968 Decree No. 34 of 1992) wholesale sectors 1968, Act No.
Law No.12, 54 of trade, radio (Presidential 12, 1970,
1970 1993, and television Decree No. 54, Guidelines of
Govt Foreign broadcasting 1993, Decree the Capital
regulation, Investment of the Ministry Investment
Presidential Act 1994) (Presidential of Industry No. Co-ordinating
Decrees, Decree No. 114/M/SK/199 Board
Ministerial 54 of 1993, 3, Decree of
Regulations, Foreign the Ministry of
Decision, Investment Finance No.
Decree of Act 1994) 645/KMK
Investment 01/1993)
Co-ordinating
Board (ICB)

Malaysia depending No certain parts local content Pioneer Status,

The Promotion on restriction or requirements depending on
of Investment proportion components in motor local content
Act (PIA) of of (except for industries vehicles, linkages, value
1986, production some export added, MTS
The Industrial exported threats to (ICA 1975) requirement ratio, export
Co-ordination environment depending on oriented
Act (ICA) of (ICA 1975, ) level of foreign manufacture,
1975, revised MITI equity technology,
in 1986, MITI regulations R&D and
Regulations, ) (ICA 1975, HRD
The Foreign MITI (The
Investment regulations Promotion of
Committee 1991) Investment
Guidelines(FI Act, 1986,
C) Malaysian
Income Tax
Act, 1967
(MITA)

Philippines subject to Lease right, retail trade, local content Investment

Foreign negative up to 75 mass media, requirement , incentives
Investments lists years, hold engineering, export Tax and Non-
Act of 1991 (Foreign land subject rice and corn performance Tax incentives
R.A. 7042 Investment to approval production, requirements (The Omnibus
as amended by Act of and defence and technology Investments
RA 8179 1991, conditions related transfer Code of 1987,
Second activities, requirements RA 6810,
Regular (the small and in certain BOI's Official
Foreign Investors' medium-size sectors, Order No. 6 of
Investment Lease Act of domestic including 1993),Executi
Negative 1993, market motor vehicles ve Order No.
List President enterprises, (the Car 470:
pursuant to Decree No. import and Development Tariff f
executive 1648) wholesale Program, Reform of
order) activities Commercial 1991)
Foreign Vehicle
Investment Development
Act of 1991, Program, the
Nationalisatio Motorcycle
n Laws and Development
Other Program
Requirements
, Various
Republic
Acts (RA),
Constitution))

Singapore generally No arms and No Pioneer Status,

Company there is no restriction ammunitions performance Package of tax
Act, restriction manufacture, requirements incentives
The Business except in electricity, (Economic
Registration banks, air gas, and Expansion
Act, Acts lines and water, Incentives
under shipping newspaper Relief from
administration (Company publishing, Income Tax
of Economic Act, the airlines and Act, Income
Development Banking shipping Tax Act
Board Act, (the Control
Monetary of
Authority Manufacturer
of Act, and the
Singapore National
Act) Security Act,
the Banking
Act)

Thailand in Generally banking and local content Tax and Non-

Investment restricted foreigners finance, requirements Tax Incentives
Promotion Act sectors or are not allow insurance, in motor (Investment
B.E. 2520 if less than to own land certain public vehicles, Promotion
(1977)amende 80% of unless utilities and pasteurised and Act, 1977,
d by the output promoted by military skimmed milk, 1997,
Investment exported the Board of goods, and various BOI
Promotion Act (permissio Investment agriculture, other announcement
(No. 2) B.E. n of the animal manufacturing ,
2534 Board of (Land Code, husbandry, industries, BOI
(1997), the investment the fishery domestic sales Guidelines:
Alien Business Promotion, Condominiu (the Alien and export Criteria for
Law of 1972 permission m Act, the Business requirements granting Tax
of the Investment Law, 1972, in certain and Duty
Ministry of Promotion Commercial sectors Privileges for
Commerce Act, Banking Act, (the Factory promoted
, Civil and Petroleum 1962, Act on Act(B.E. Projects, 1993,
Commerci Act of 197, the 2535), The Revenue
al Code, and the Undertaking Investment Code)
Investment Industrial of Finance Promotion Act
Promotion Estate Business, (B.E. 2520)
Act Authority of Securities
Thailand Business and
Act) Credit
Foncier
Business,
1979 and the
Securities and
Exchange
 Act, 1992,
Life
Insurance
Act, 1992 and
the Casualty
Insurance
Act, 1992,
Thai vessel
Act, 1971

Source: Compiled by the author from national legislation.

Part 2

_______________________________________________________________

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

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

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

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