AEC Blueprint 2025 Analysis: Paper 4 | Liberalisation in the Investment Environment

by Ken Li Yee | Originally published on 10 March 2016.


Whilst the need to attract Foreign Direct Investment (FDI) has long been a successful driver of investment liberalisation, recent rollbacks and protectionist policies have threatened progress. The AEC Blueprint 2025 hopes to capitalise on on past momentum whilst introducing new initiatives.


The AEC Blueprint Analysis series is a publication which seeks to provide insight into the ASEAN Economic Community Blueprint (AEC) 2025. The publication will seek to do so by adopting a holistic approach in its analysis; creating context by examining past achievements, defining present challenges, and discussing future plans. The series will pay special attention to strategic measures outlined within the AEC’s new blueprint, providing insights with regards to the viability of regional economic integration under the AEC.


A. Past Plans

What were the targets in the AEC 2015 Blueprint?
The goal of free flow of investment is a key element in achieving the AEC’s first pillar within the 2015 blueprint, which details the creation of a single market and production base. It should be noted that whilst the liberalisation of trade and other ancillary measures do impact the movement of investment, a stringent focus on direct policies regarding investment will be placed upon this paper. Since 1967, several key agreements and actions were adopted in an effort to remove barriers to investment and facilitate investment flows:

Investment Guarantee Agreements (IGA)
Signed in 1987, the objective of the IGA was to promote greater investment flows between countries by providing a legal framework which defined investment norms and protection. The IGA introduced several basic principles:

  • Principle of non-discrimination, which standardised investment policy treatment across member states,
  • Compensation in the event of expropriation,
  • Free transfer of funds,
  • Investor state dispute settlement mechanisms.

ASEAN Investment Area (AIA) Agreement
Endorsed in 1995, the AIA Agreement fostered cooperation, facilitation, and liberalisation within the investment environment of ASEAN. The AIA Agreement introduced reforms to specific sectors on a pre-agreed schedule:

  • Manufacturing, agriculture, fisheries, forestry, mining and quarrying and services incidental to these sectors were to be covered by the AIA by 2010 for the ASEAN-6 and 2015 for the CLMV nations,
  • Two separate lists, the Temporary Exclusion Lists (TEL) and Sensitive Lists (SL) were also introduced, with the TEL
    to be phased out over time and the SL to be reviewed periodically.

ASEAN Comprehensive Investment Agreement (ACIA)
Coming into effect in 2012, the ACIA improved upon the AIA and IGA by means of several key measures:

  • Adopting international best practices in relation to investment protection
  • Defining portfolio investment, intellectual property, and other general ambiguities
  • Extending the coverage of previous agreements to third-country nationals
  • Introducing Investor-State Dispute Settlement mechanisms (ISDS) and promoting other dispute resolution methods

AEC Blueprint 2015
The AEC Blueprint solidified the commitments of previous agreements and regrouped policies into a four pronged approach to addressing the freedom of investment:

  • Investment Protection
  • Facilitation and Cooperation
  • Promotion and Awareness
  • Liberalisation


B. Past Achievements

What has been achieved?

From a broad perspective, developing economies such as Cambodia and Vietnam have more open policies than developed ones such as Malaysia, Indonesia and Thailand. This is emphasised by Figure #1, which measures FDI restrictiveness on a scale of 0 to 1 with higher scores indicate more restrictive investment policies in a nation.


Following the adoption of the AEC Blueprint 2015 in 2007, the uptake for FDI in CLMV nations has been apparent due to market enabling policies. Figure #2 illustrates that a moderate negative correlation between high levels of FDI and low levels of regulatory restrictiveness.


In particular, it was observed that FDI restrictiveness was relatively higher within the communication and transport sectors. (Thangavelu, 2015).

Since the introduction of the ACIA, the Reservation Lists (RL) for four member states has changed as of the
AEM-18th AIA council Meeting in August 2015:

  • Brunei narrowed the scope of sectors on its RL,
  • Laos removed the manufacturing sector from its RL,
  • Myanmar shaved off restrictions on foreign investment in certain products,
  • Indonesia introduced more restrictive changes to its coal and mining sectors.


C. Present Challenges

What are the current issues?

ACIA commitments do not necessarily match investment policy:

  • In particular, Indonesia’s passing of Presidential Regulation No. 39/2014 meant that investment policies surrounding manufacturing, agriculture, mining, and services were more restrictive than ACIA commitments (Damuri et al, 2014),
  • The Philippines has severe constraints in the agriculture, fishery, forestry, and mining sectors; foreign equity limits of more than 40% are still present (Llanto et al, 2014),
  • Whilst Malaysia has followed through on liberalising foreign equity restrictions in its services industries, foreign equity restrictions in its goods sectors and megaprojects are still present (MIER, 2014),
  • Vietnam is currently rolling back its investment protectionist policies, and will not have issues in regards to completing the ACIA commitments if current trends continue.

There is no standardised definition of sensitive industries, allowing for the ad-hoc classification of sectors which are not covered by the ACIA.

Standardisation of investment policies across the region is still a long term challenge made harder by several factors:

  • A lack of concrete limitations, where nations such as Singapore and Myanmar do not give specific limitations on foreign equity ownership but rather decide limits on a case by case basis,
  • The Coordinating Committee on Investment (CCI) peer review system has not been used effectively, and most disputes have been settled outside the AIA,
  • A lack of unified commitments and set timeline.


D. Future Plans

What new measures are included in the AEC 2025 Blueprint?
As the ACIA does not posses a concrete timeline and set commitments, the logical step forward would be to formulate these elements in future action plans. This is reflected within the actionable clauses in the AEC 2025 Blueprint,
whereby the focus is placed upon implementing previous commitments and sharpening existing mechanisms for
investment liberalisation.


E. AEC 2025 Blueprint Analysis

What do the measures entail?



F. Conclusion

What does the AEC 2025 Blueprint mean in terms of the movement of skilled labor?
ACIA has limited scope as its liberalisation provisions are limited to five sectors and services incidental to these
sectors. The ACIA should broaden its breadth and depth to meet the demand of increasing cross-border investment not limited to the 5 sectors, as the vision of ASEAN gains prominence.

The state of investment liberalisation ultimately depends upon the political capital available to ASEAN member states, where economic conditions, domestic issues, and foreign policy will dictate the success of the ACIA and future endeavours.

In comparison to ATIGA and the AFAS, the ACIA does not posses a definitive list of commitments nor a set timeline for the implementation of policy; this is reflected within the AEC Blueprint 2025 which calls for further clarification to existing modalities and mechanisms.

Areethamsirikul, S. (2008). The Impact of ASEAN Enlargement on Economic Integration: Successes and Impediments Under ASEAN Political Institution, The University of Wisconsin – Madison.
ASEAN 2025: Forging Ahead Together, The ASEAN Secretariat (2015).
Damuri, Y.R., I. Setiadi, D. Christian and E. Sasmito (2014), ‘ASEAN Economic Community Scorecard Phase IV:
Indonesia’ . Jakarta: Centre for Strategic and International Studies. (CSIS).
Kalinova, B., A. Palerm and S. Thomsen (2010), “OECD’s FDI Restrictiveness Index: 2013 Update”, OECD Working Papers on International Investment, No. 2010/03, OECD Publishing, Paris.
Llanto, G., R. Serafica, E. Medalla, K. Ortiz, K. Detros, F. Del Frado, M. Mantaring, V.
Ulep, D. Ortiz, P. Padronia, and A. Maddawin. (2014), ‘ASEAN Economic Community Scorecard Phase IV: the Philippines’ Manila: Philippine Institute for Development Studies.
MIER (2014), ‘ASEAN Economic Community Scorecard Phase IV: Malaysia’. Kuala Lumpur: Malaysia Institute of Economic Research.
Secretariat, T. A. (2008). ASEAN Economic Blueprint.
Secretariat, T. A. (2015). ASEAN Intergration Report 2015.
Secretariat, T. A., & UNCTAD. (2015). ASEAN Investment Report 2015 Infrastructure Investment and Connectivity.
Secretariat, T. A. (2015). A Blueprint for Growth ASEAN Economic Community 2015: Progress and Key Achievements.
Thangavelu, S. M. (2015). “FDI Restrictivness Index for ASEAN.” ERIA Discussion Paper Series.

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