The principle of National treatment in ASEAN´s Agreement on Investment

I.  Introduction

Association of South East Asian Nations is an inter-governmental organization composed of ten member states from south east Asian region.

ASEAN was founded based on the Bangkok declaration, on 8 august 1967, and on 2007 came to strengthen their position as an international organization with legal personality, by creating the new constitution or fundamental law, which is the ASEAN Charter of 2007[1]. This charter aside of being the legal personality of the organization, it also serves as the fundamental instrument for ASEAN principles and goals, such as the free trade agreements and ASEAN economic community. On the economic field, ASEAN is focusing on free flow of goods, services and investments. The idea for the free flow of investment has actually started since 1987, with the ASEAN Agreement for the Promotion and Protection of Investments[2]. There are series of instruments for the implementation of free flow of investment such as the framework agreement on the ASEAN investment area of 1998, ASEAN comprehensive investment agreement, which, all together, aimed to achieve the goal of ASEAN Economic Community in 2015[3]. In summary, all the agreements regulate investments and dispute resolution issues.

In regard to the character of the investment, it has to be the direct investment with the exception of matters relating to the investments covered by other ASEAN agreements, such as the ASEAN framework agreement on services.[4] The government procurement, the service supplies by a governmental authority of a member state are also excluded. The international investment protection has a big challenge on its implementation in ASEAN. In addition, investment area has a lot of critical point that causes international infestation such as nationalization, conflict with the property of foreign investors, the flow of capital and taxation. Beyond that, a 2014 IIA report points that there are two types of challenges put by states members and faced by investors namely cancellation and allegation of violation of contracts, revocation or denial of licenses, which may be the reflection of the National Treatment Principle (NTP) in regard to the treatment between foreign and national investors. This NTP is likely to be a contradiction to the non – discrimination standard of GATT principle.  Since the agreement for the promotion and protection of investment of 1987, this clause has been stated[5], although the implementation is various based on the economic capacity of each member states[6].

II. Body

In regard with the article 9 of ASEAN Comprehensive agreement on investment, each state member may sign their reservation. The national treatment standard includes a wide range of items from the fully prohibited to with restriction principles. Some sector that are opened to foreign investor, for example, in Brunei Darusalam, the sole proprietorships and cooperative societies are only given to the citizen of Brunei; the Lao´s people Democratic Republic is not allowed foreign investor in sector manufacturing mining and quarrying collection of Guano; the same case happen in Cambodia, Malaysia, Philippines; and Vietnam are also not allowing some sector of mining and quarrying, Cambodia prohibits exploration of any kind of sands for export, while Malaysia on gemstone. The Philippines is only allowing exploration of mining and service incidental of mining in small-scale while Vietnam prohibits mining in oil, beside the sector of mining, oil and  gas, other sector such as foresty, EEZ explorations[7] also mostly close to the foreign investor. Activities and certain sector of manufacturing, fishery, agriculture, are mostly permitted with restriction in maximum equity of foreign investment, type of entrepreneur and certain requirement on registration and other administration license. In addition, in some members states national treatment is not given to the small and medium sized entrepreneurs, those member states are Indonesia, Philippines, Brunei Darusalam, Thailand, and Vietnam.

Beside those areas above, foreign expatriates, privatization, permanent residence and land ownership and usage also remain subjects of exclusion of the national treatment in some member states. Foreign expatriate is permitted in Singapore, while in Thailand, some openness are allowed by national instrument.  In Indonesia, Malaysia, Brunei Darusalam, Philippines, Thailand, Vietnam, concerning any obligation arising from the recognition of any natural person possessing the right of permanent residence is neither applying nor claimed upon Cambodia, Indonesia, Myanmar, Philippines, Thailand, and Vietnam. And regarding the ownership of land is not allowed in Singapore, Indonesia, Philippines, Laos, Cambodia, Malaysia, although it is possible to lease of land with limited and some requirement.

III. Conclusion

National treatment raises some of the most significant issues in the field of foreign direct investment. It stipulates formal equality between foreign and national investor. However, in practice national investor, especially those that could be identified as infant industries or infant entrepreneur, may be in an economically disadvantageous position by comparison with foreign investor, who may be economically powerful transactional corporations. Such economic asymmetry may require a degree of flexibility in the treatment of national investor, especially in developing countries, for instance through the granting of exception to national treatment and it is the fact that national treatment has not been implemented hundred per cent in ASEAN member states due to economic development of each member  state,  nevertheless it is important to underline that ASEAN keeps moving forward to realize free flow investment, and to achieve the goal of national treatment is not easy, this also stated in executive summary of United nations conference on trade agreement and development UNCTAD in1999 “the national treatment standard is perhaps the single most important standard of treatment enshrined in international investment agreement (IIAs). At the same time, it is perhaps the most difficult standard to achieve, as it touches upon economically (and politically) sensitive issues. In fact, no single country has so far seen itself in a position to grant national treatment without qualifications, especially when it comes to the establishment of an investment”.

 note: this article is made as a way for me to practice my writing and english skill 

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[1] Based on article 3.

[2] this agreement was signed by five founding fathers of ASEAN and Brunei Darusalam, the first member who joined ASEAN on 7 january 1984

[3] article 1 of ASEAN comprehensive Investment agreement, Thailand, 26 February 2009. Stated that the objective of this agreement is to create a free and open investment regime in ASEAN in order to achieve the end goal of economic integration under the Asean Economic Comunity in accordance with the AEC blueprint. Through the following;

a.      progressive liberalisation of the investment regime of member states

b.      provision of enhanced protection to investors of all member stats and their investment

c.      improvement of transparency and predictability of investment rules, regulations and procedures conducive to increased investment among member states

d.     join promotion of the region as an integrated investment área

e.      cooperation to create favourable condition for investement by investor of a member state in the territory of the other member states

[4] Based on article 2 framework agreement on the ASEAN Investment Area.

[5] According to article 7.

[6] Malaysia is allowing fishery is EEZ with restriction and requirment.