Abstract
Given the deepening of International Production Networks (IPNs) today, trade reforms cannot be completed without commensurate investment liberalizations. With the slow progress of WTO negotiations on both fronts, the mega-regional trade agreements (RTAs) such as Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) are emerging as the viable alternatives. In both the upcoming mega-blocs, Association of Southeast Asian Nations (ASEAN) countries form a crucial component, given their inherent advantages in terms of skilled labour force, and shift of the production frontier in terms of technical sophistication in the manufacturing segments. In addition, the service sectors have significantly matured with value co-creation among regional partners. This maturity can be attributed to ASEAN Comprehensive Investment Agreement (ACIA), signed and entered into force in 2009 and 2012, respectively, enabling the bloc to grow as an IPN hub of Asia. In this context, the recent volume by Chaisse and Jusoh, focusing on various aspects of ACIA, is a major contribution to the literature.
Part one of the volume discusses the evolution of the international law on foreign investment in the Asia-Pacific region. Given the comparative, acquired and scale advantages (e.g., resource availability, supply of labour, access to port, investment facilitation and market size) that ASEAN countries enjoy, since the 1970s inward foreign direct investment (FDI) poured in. FDI from Japan through the ‘Flying Geese’ model is a case in point. Subsequently, a number of bilateral investment agreements (BITs) were formed at the country level, leading to the ‘noodle bowl’ phenomenon. The ASEAN Free Trade Agreement (AFTA), 1992, integrated the ten member countries from trade perspective. The ASEAN Economic Community (AEC) Blueprint 2025 introduced in 2015, of which freer flow of capital is a crucial component, intends to expand both the inward and outward integration to the next level. However, the divergence in FDI inflow volume between the advanced economy of Singapore and the less developed countries (LDCs), that is, Laos, Cambodia, Myanmar and Vietnam, is still stark. ACIA is a unique step in this context, geared to liberalize sectors in line with the economic interest of member countries, while simultaneously providing protection to ASEAN investors in all sectors. The agreement contains provisions for further reforms and stands on four pillars, namely liberalization, facilitation, protection and promotion.
ACIA is a culmination of the ASEAN Investment Guarantee Agreement (AGIA), 1987, and ASEAN Investment Area (AIA), 1998. Part two of the volume notes how ACIA complements the ASEAN Trade in Goods Agreement (ATIGA), 2009, and ASEAN Framework Agreement on Services (AFAS), 1995, leading to freer flow of goods and services within the trade bloc. In line with ongoing reforms, the complexity of ACIA’s coverage has deepened manifold. This section also provides a comprehensive review of the national investment promotion agencies and regulators in ASEAN members.
Part three focuses on the substantive regime of the ACIA framework, which ensures that once sectoral liberalization occurs, their rollback should not happen. The investment–investor definition under ACIA plays a key role in facilitating FDI even from countries with whom no BIT of a particular ASEAN member exist. The principle of non-discrimination in ACIA, effected through National Treatment (NT) and Most Favoured Nation (MFN), ensures that the foreign players are not put in a disadvantageous position vis-à-vis the local players. NT provisions in most bilateral agreements is not featured with regard to establishment. ACIA ensures that ASEAN investors at every stage are not discriminated against as compared to the national firms, thereby creating a level playing field. However, the MFN provision exceptions under ACIA and is more limited as compared to other BITs, given its sub-regional nature. The analysis narrates with detailed perspective the business implications of the liberalization measures with practical examples. Referring to various disputes and hypothetical examples, it further explores the standards of protection to secure fair and equitable treatment in ASEAN, NAFTA and other forums, to appreciate the implications on business potential and the concern areas such as possible appropriation and compensation. The section also covers other substantive rules such as balance of payments (BOP) related measures, subrogation, entry and temporary stay related provisions, transparency and exceptions to that. Finally, the general exception provisions relating to public morals, human, animal or plant life, etc. have been discussed, with reference to the existing case laws (Thailand—Cigarettes). In addition, in line with global investment agreements, ACIA exceptions relating to possible security breaches are outlined.
Any RTA or BIT remains dysfunctional without an effective dispute settlement mechanism. Part four of the volume discusses the dispute settlement provisions under ACIA, where the investors are free to choose their preferred route for settling a dispute in hand. ACIA is geared to ensure that the disagreement between partners does not aggravate into disputes, by including the channels of informal negotiations and institutional mediation. The detailed ACIA provisions and procedures for conciliation between investor–state as well as state–state arbitrations are dealt in clear terms. The institutional wisdom pertains to the fact that players from ten countries might emerge as aggrieved parties in the disputes, involving significant complexities and transaction costs. The growing number of cases over the years suggest that investor–state arbitration is going to emerge as a major area in coming days.
Part five of the volume deals with the emergence of an ASEAN external investment policy, essentially the implication of the investment chapters in ASEAN’s Preferential Trade Agreements (PTAs) with other dialogue partners. Through analysis of the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), ASEAN-China Free Trade Agreement (ACFTA) and ASEAN-Korea Free Trade Agreement (AKFTA), their framework, MFN and NT provisions and Investor-State Dispute Settlement (ISDS) arrangements are compared with the corresponding ACIA provisions. The analysis indicates that ACIA provides a more comprehensive framework on several provisions.
The concluding section notes the ASEAN acknowledgement of the positive role of cross-border investment flows, and the subsequent intervention, and guarantees to deepen regional business linkages through the development of a fair and non-discriminatory framework. The adoption of an efficient, transparent and legally binding approach for settlement of disputes has added further credential and certainty to the system. Given ASEAN’s commitment to deepen intra-bloc as well as global FDI flows in line with AEC Blueprint 2025, ACIA is going to crucially influence as well as shape that success.
With Asia-Pacific fast emerging as the hotbed of mega-RTAs and the role of ASEAN in this context, ACIA’s importance is bound to intensify in coming days. In this context, understanding of the ACIA provisions is important not only for the ASEAN players but also for all its dialogue partners including RCEP countries as well as individual BIT and RTA partners of ASEAN. Therefore, the present volume, which extensively discusses the intricacies as well as limitations of ACIA, is a must-read reference to the academicians, policymakers, multilateral body office-bearers and academic researchers who have keen interest in this area.