Enhancing Investment Facilitation in ASEAN

Investment facilitation is recognised across the world as an increasingly important initiative to attract and maintain FDI. The conclusion of the negotiation of WTO Investment Facilitation for Development Agreement (IFDA)¹ on 6 July 2023 and its subsequent declaration at the 13^th WTO Ministerial Conference (MC13) on 26-29 February 2024 marked an important milestone in multilateral initiatives in the area of investment including for ASEAN Member States (AMS). A study by Balistreri and Olekseyuk (2021)² estimated that the recent WTO IFD’s full implementation could generate global welfare gains of between US$250 billion and US$1,120 billion, with the less developed countries are expected to gain more.

 

ASEAN Member States (AMS) has been serious about investment facilitation for a long time but the work on it at regional level has been intensified since the COVID-19 outbreak. Investment facilitation has been an integral pillar of ASEAN Comprehensive Investment Agreement (ACIA)³, signed as early as on 26 February 2009, which covers all four pillars of investment policies with the other three pillars being liberalisation, protection and promotion. 

 

Investment facilitation is also recognised under the ASEAN Economic Community (AEC) Blueprint 2015 adopted earlier on 20 November 2007 and became positive policy push for AMS ever since. AEC Blueprint 2015 stated that investment facilitation and cooperation are intended to establish ”a more transparent, consistent and predictable investment rules, regulations, policies and procedures”. This section includes 7 (seven) action lines that includes measures on investment policies, procedures, information including throughone-stop investment centre, databases, coordination among ministries, and consultation with private sectors which mostly have been provided and enhanced in Article 25 of the ACIA.  The subsequent AEC Blueprint 2025 adopted on 22 November 2015 focuses more on liberalisation, liberalisation, and promotion efforts, with the facilitation part focusing more on transparency of investment measures.

 

Following the Covid-19 pandemic outbreak, investment facilitation gained increased traction. In the ASEAN Comprehensive Recovery Framework (ACRF) which was adopted by ASEAN Leaders on 12 November 2020 as a comprehensive strategy to emerge more resilient and stronger from the pandemic crisis, its strategy 3h calls for streamlining and expediting investment process and facilitation and joint promotion initiatives, including exploring the development of a regional initiative to facilitate investment into ASEAN.  

 

This ACRF mandate eventually resulted in ASEAN Investment Facilitation Framework (AIFF), adopted by ASEAN Economic Ministers (AEM) and ASEAN Investment Area (AIA) Council in 2021.  AIFF significantly enhances the investment facilitation provisions in the ACIA through detailed provisions in the areas of (i) governance and service standards i.e. “independence of competent authorities” and “speeding up Administrative Procedures and Requirements” and “transparency”, (ii) digitalisation i.e. “Use of Digital and Internet Technologies” and “Single Digital Platform”, (iii) supporting policies, i.e. “Temporary Entry and Stay of Business Persons for Investment Purposes”, “Facilitation of Investment Supporting Factors”, and (iv) international collaboration, i.e. “Cooperation among AMS including best practices”.

 

While being a non-legally-binding document, the AIFF has taken into account investment facilitation best practices and is generally in conformity with the WTO IFDA which was finalised at a later stage than the AIFF. There are IFDA provisions not specifically included in the ACIA and AIFF, especially those related to (i) different treatment for developing and least-developed countries and (ii) sustainable investment.  While the LDC provision in the WTO IFDA is more applicable in a multilateral setting as compared to a regional context such as ASEAN, the sustainable investment provisions might be considered in ASEAN’s upcoming works.

 

The summary of the measures differences can be seen in Table 1 below.

 

Table 1: Provisions of Investment Facilitation for ASEAN Member States

Measures	ACIA (legal instrument)	AIFF (non-legal instrument)	IFDA (legal instrument)
Investment procedures	♦	♦	♦
Transparency of investment measures	♦	♦	♦
Coordination with respective ministries		♦	♦
Consultation with private sectors	♦	♦	♦
Advisory services to investors	♦	♦	♦
Independence of Authorities		♦	♦
Single information portal	♦	♦	♦
Investment Supporting factors		♦	♦
Utilisation of digital technologies		♦	♦
Cooperation	♦	♦	♦
Special treatment to LDC			♦
Sustainable Investment			♦

Source: Author’s Analysis

 

ASEAN has been progressing well in implementing AIFF measures. The ASEAN Investment Report published in 2022 (see Table 2) reported that most of the provisions in the AIFF has already been in place in AMS.  These investment facilitation measures have contributed to ASEAN’s overall economic as well as investment performance in the recent years. ASEAN as a region accounted for the fourth highest nominal GDP in the world with a combined GDP surpassing USD 3.6 trillion in 2022. In the same year, the region ranked third in the world in term of FDI inflows value amounting US$228.9 billion (source: ASEAN Secretariat⁴).

 

Table 2: Implementation of ASEAN Investment Facilitation Framework

	Brunei Darussalam	Cambodia	Indonesia	Lao PDR	Malaysia	Myanmar	Philippines	Singapore	Thailand	Viet Nam
Transparency of measures and information	1	1	2	1	2	1	1	2	2	1
Streamlining and speeding up administrative procedures and requirements	1	2	2	1	2	1	1	2	2	1
Use of digital and internet technologies	2	1	2	1	2	1	2	2	2	2
Single digital platform	0	0	2	0	2	0	1	2	2	2
Assistance and advisory services to investors	1	2	2	1	2	1	1	2	1	1
Independence of competent authorities	2	2	2	2	2	2	2	2	2	2
Temporary entry and stay of business persons for investment purposes	1	1	1	1	1	1	1	1	1	1
Facilitation of investment supporting factors	0	1	1	0	2	0	1	2	2	1
Consultative mechanisms for investment policies	1	2	2	1	2	1	1	2	2	1
Cooperation	2	1	2	1	2	1	2	2	2	1

Source: ASEAN Investment Report 2022

Note: 0 = not in place, 1 = basic, 2 = advanced

 

Improving Investment Facilitation Measures

 

There remains plenty of room for improvement of investment facilitation measures across AMS which solidifies the importance of investment facilitation agreement (Balisteri and Olekseyuk, 2021⁵). The bigger the gap between the provisions of the agreement with the existing investment facilitation regime, the bigger the impact of such agreement. Therefore, ASEAN could leverage on the momentum of the recent conclusion of the IFDA and the ongoing implementation of AIFF to strengthen its strategy in improving the quality of its investment facilitation effort.

 

The need for speeding up implementation of AIFF measures is discussed in the AIR 2022, and particularly needed for AMS such as Cambodia, Lao PDR, and Myanmar. As indicated in Table 2 above, these AMS are yet to develop their investment facilitation measures such as single digital platform and facilitation of investment supporting factors (such as labour force, funding sources, domestic suppliers, and business matchmaking opportunities). In addition, all AMS have only basic implementation of the measures regarding Temporary entry and stay of business persons for investment purposes. Even the progress among AMS in implementing AIFF are varying. Closer cooperation among AMS, including through knowledge sharing would be useful.

 

Stronger cooperation among investment facilitation agencies is also deemed useful and is encouraged by ACIA, AIFF, as well as IFDA. Article cooperation of AIFF encourage AMS to “Facilitate communication and cooperation with other Member States on matters relating to investment facilitation, including through the exchange of information on procedural requirements, best practices, technical assistance and capacity building”, which is mutually reinforcing with section V of WTO IFDA, which stipulates that “Assistance and support for capacity building (technical, financial, or any other mutually agreed form of assistance provided) should be provided to help developing and least-developed country Parties implement the provisions of this Agreement, in accordance with their nature and scope”.  

 

The region also needs to improve its business transparency and public outreach. Based on UNCTAD Global enterprise registration rating (2022)⁶, ASEAN’s performance are generally lower than global average in terms of information portals⁷ and online single windows⁸. Lastly, enhancement in governance and transparency of investment also can be the scope of review for enhanced facilitation in ASEAN in order to realise potential from investment facilitation efforts. These include measures such as no fees imposed for access to information, publication in advance, and opportunity to comment on proposed measures.

 

ASEAN’s Future Work on Sustainable Investment

 

Further to the work on investment facilitation, the region is currently working on promoting sustainable investment⁹. The ACRF (2021) through its Broad Strategy 5 “Advancing Towards a More Sustainable and Resilient Future” and more specifically through key priority 5d “Promoting Sustainable and Responsible Investment”, calls for the region to “..step up efforts to promote sustainable and socially responsible investment policy making at national and regional levels may include, but not limited to, efforts in enhancing local economic linkages, ensuring environmental sustainability, promoting social development and inclusion, and upholding good governance. In particular, the region could work on attracting more investment in sectors that were resilient during the pandemic, and those that can help address future crises. These periods should also present ASEAN with an opportunity to reassess its development strategies and plans with regard to sustainable investment.”

 

This mandate is mutually reinforcing with WTO IFDA agreement section VI Sustainable Investment Article 37 “Responsible Business Conduct” and “Measures against corruption “ which states that“With a view to promoting sustainable development, each Party shall encourage investors and enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate into their business practices and internal policies internationally recognized principles, standards and guidelines of responsible business conduct that have been endorsed or are supported by that Party and “In accordance with its legal system and internationally agreed standards and commitments that it has adhered to or that it supports, each Party shall ensure that measures are taken to prevent and fight corruption and money laundering with respect to matters falling within the scope of this Agreement”. ASEAN could make sure that the coming ASEAN Sustainable Investment Guidelines aligns with this mandate.

 

Lastly, recent reconfiguration of global FDI trends provide opportunity for the region to work more on sustainability aspect of investment policy governance. According to Yahya through the East Asia Forum (2024)¹⁰, future FDI inflows trend in ASEAN will be heavily influenced by external factor, especially its major investment partners. While FDI will remain important for ASEAN with limited financing capacity, such external factor has pushed more investment policy reforms improving the transparency of investment policies.