Introduction to the ASEAN Comprehensive Investment Agreement
By Sondre Ulvund Solstad
Apr. 12 – The ASEAN Comprehensive Investment Agreement (ACIA) entered into force on March 29, 2012, aiming to create a free and open investment environment through the consolidation and expansion of existing agreements between the ASEAN member countries. In replacing its two precursors, the ASEAN Investment Area (AIA) and ASEAN Investment Guarantee (AIG) agreements, the ACIA attempts to establish a regime based on international best practices while expanding and reaffirming principles set down in the AIA and AIG. In doing so it provides comprehensive and clear definitions in line with existing international agreements, enhancing the attractiveness of ASEAN as a single investment destination.
The ACIA is seen as a key part of the ASEAN Economic Community blueprint set down by the regional grouping’s member states in 2007, which aims to establish an integrated regional economy with the free flow of both investment and services.
In an interview with the Oxford Business Group last year, then ASEAN Secretary General Surin Pitsuwan stressed the agreements commitment to international best practices, labeling the deal a “bold initiative”.
“As the name suggests, the ACIA is comprehensive, but more than that, it is also based on international best practices and on a par with other international investment agreements in terms of its scope, rights and obligations,” he said.
The overall goal of the agreement, according to the ASEAN Secretariat based in Jakarta, is the establishment of a “liberal, facilitative, transparent and competitive investment environment in ASEAN.”
The ACIA covers almost all forms of investment (excluding only the reservations made by members in the ACIA schedule of reservations), with liberalization provisions covering the four main sectors of manufacturing, agriculture, fishery, mining and quarrying, as well as services incidental to these sectors. Liberalization is expected to progress steadily towards 2015, as member states gradually phase out their reservations regarding investments in certain industries.
Who is protected under the ACIA?
In order to benefit from the ACIA an investment must be made by either a natural person (national, citizen, or permanent resident) of any ASEAN country or by an ASEAN-based juridical person that fulfills the requirements laid down in the ACIA. Investment through a recognized juridical person is how investors from outside ASEAN may benefit from the protection granted in the ACIA.
In order for an investment by a non-ASEAN party to be protected under the ACIA the following conditions must be fulfilled:
- The investment is made by a juridical person in a ASEAN member state. The juridical person may be any legal entity defined as such by the relevant member country.
- The non-ASEAN party must own or control (i.e. have power to name a majority of its directors or legally direct the actions of) the ASEAN legal entity.
- The juridical person must carry out substantial business operations in the ASEAN member state in which it was first established.
- The non-ASEAN third party is from a country with diplomatic relations with the relevant ASEAN member state.
Investment protection under the ACIA
The ACIA entitles eligible investments to a number of protections. Most of these protections oblige the host state of such investments to provide compensation should it fail to uphold its obligations to a free and competitive investment environment.
Fair and equitable treatment
The government of any host country must abide by its laws and regulations when exercising its power, and is not allowed to make arbitrary decisions. In the event that legal action is taken against any investor, the investor will be given the right to defend itself, with access to legal representatives and opportunity to appeal any adverse outcomes or decision.
Full protection and security
The host government is obliged to provide protection and security to all investments in the event of physical danger (for instance during riots or demonstrations). In the event of losses suffered as a result of armed conflict, strife or similar events, host countries must compensate the affected investors on a non-discriminatory basis.
No unlawful expropriation
Any ASEAN state which expropriates any ACIA protected investment, directly or indirectly, is obliged to provide adequate and effective compensation to the affected investors in a prompt fashion in due accordance with law. Compensation must be fully realizable and transferable between ASEAN member states and equivalent to the fair market value at the time the expropriation was announced or occurred. Expropriation is only allowed when undertaken for public purposes and when it is done in a non-discriminatory manner.
Exceptions to this include when expropriation is allowed to acquire land subject to the investment, provided compensation is paid to the investor in accordance with domestic laws, and when host states may impose a compulsory license for intellectual property in accordance with domestic law.
Free transfer of funds
Any investor may freely and without delay conduct investment-related transfers in and out of the territory of the ASEAN state in which it has invested. These transfers may be made in freely usable currencies and at the market rate of exchange at the time of transfer. In exceptional circumstances this right may be limited through good-faith application of the host country’s laws and procedures, for instance with regards to bankruptcy, insolvency, trading in securities and futures, taxation, and severance for employees.
In limited circumstances, capital transactions may also be restricted on a general basis if requested by the International Monetary Fund (IMF), as a measure to safeguard the balance of payments, or when capital movements threaten to cause serious economical or financial disturbance in the host country.
Protecting insurers’ right to recover
If an insurer has covered the lawful obligations of a host state to the investor, the insurer has the subrogated right to compensation from the host state.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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