• Free Flow of Goods

  • Free flow of goods is one of the primary means by which the aims of a single market and production base can be realised. A single market for goods (and services) will also help develop production networks in the region and enhance ASEAN’s capacity as a global production centre or as a part of the global supply chain.

    Through the ASEAN Free Trade Area (AFTA), ASEAN has achieved significant progress in the removal of tariffs. However, free flow of goods would not only require zero tariffs but also the removal of non-tariff barriers. Another key component to facilitate the free movement of goods would be trade facilitation measures such as integrating customs procedures, establishing the ASEAN Single Window, continuously enhancing the Common Effective Preferential Tariffs (CEPT) Rules of Origin including its Operational Certification Procedures, and harmonising standards and conformance procedures.

    The Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area (CEPT-AFTA) Agreement will be reviewed and enhanced to become a comprehensive agreement that realises free flow of goods and caters to ASEAN’s needs for accelerated economic integration towards 2015.

  • Free Flow of Services

  • Free flow of trade in services is one of the key elements in realising the AEC, where there will be substantially no restrictions on ASEAN services suppliers providing services and establishing companies across national borders within the region, subject to domestic regulations.

    Liberalisation of services has been carried out through rounds of negotiation mainly under the Coordinating Committee on Services. Negotiations relating to some specific services sectors, such as financial services and air transport, are carried out by the respective government bodies of member states. In liberalising services, there should be no back-loading of commitments, and some pre-agreed flexibility shall be accorded to all ASEAN Member Countries (AMCs).

    To promote the free flow of services by 2015, ASEAN is working towards recognition of professional qualifications with a view to facilitating their movement within the region.

    Measures to liberalise the financial services sector should allow members to ensure an orderly development of the financial sector and the maintenance of financial and socio-economic stability.

  • Free Flow of Investment

  • A free and open investment regime is crucial to enhancing ASEAN’s competitiveness in attracting FDI from outside the region as well as intra-ASEAN investments. Sustained inflows of new investments and reinvestments will promote and ensure a dynamic development of ASEAN economies.

    ASEAN investment cooperation is implemented through the 1998 Framework Agreement on the ASEAN Investment Area (AIA), while investment protection is provided for under a separate agreement, i.e. the 1987 ASEAN Agreement for the Promotion and Protection of Investment – commonly referred to as the ASEAN Investment Guarantee Agreement (IGA).

    Under the AIA, all industries in the manufacturing, agriculture, fishery, forestry and mining and quarrying sectors as well as services incidental to these five sectors shall be open, with national treatment granted to investors at both the pre-establishment and post-establishment stages, apart from the exceptions listed in member countries’ Temporary Exclusion Lists (TEL) and Sensitive Lists (SL). The TEL will be phased out based on agreed timelines. Although the SL do not have a timeline for phasing out, they will be reviewed periodically.

    At the present moment, there are still restrictions imposed by several AMCs on foreign investments, especially in strategic sectors. Table 2 sets out a brief outline of the current restrictions imposed by ASEAN countries on foreign investments in their respective jurisdictions.
    To enhance regional integration and maintain a competitive investment area, both the Framework Agreement on the AIA and the ASEAN IGA will be reviewed. The objective of such review would be to achieve a more comprehensive investment agreement that is forward looking, has improved features, provisions and obligations based on international best practices, so as to increase investor confidence in ASEAN.

    The ASEAN Comprehensive Investment Agreement (ACIA) will build on the existing AIA Agreement and ASEAN IGA and cover the following pillars: investment protection, facilitation, cooperation, promotion, awareness and liberalisation.

  • Freer Flow of Capital

  • The AEC also seeks to achieve a freer flow of capital across ASEAN by strengthening ASEAN capital market development and integration through:

    • achieving greater harmonisation of capital market standards in ASEAN in the areas of offering rules for debt securities, disclosure requirements and distribution rules;
    • facilitating mutual recognition arrangements or agreements for the cross recognition of professionals’ qualifications, education and experience of market professionals;
    • achieving greater flexibility in language and governing law requirements for securities issuance;
    • enhancing the withholding tax structure, where possible, to promote the broadening of investor base in ASEAN debt issuance; and
    • facilitating market-driven efforts to establish exchange and debt market linkages, including cross-border capital raising activities.

    A second prong is to allow greater capital mobility by liberalising capital movements, guided by the following principles:

    • ensuring an orderly capital account liberalisation consistent with member countries’ national agendas and the readiness of their economies;
    • allowing adequate safeguards against potential macroeconomic instability and systemic risk that may arise from the liberalisation process, including the right to adopt necessary measures to ensure macroeconomic stability; and
    • ensuring that the benefits of liberalisation are shared by all ASEAN countries.

    Capital mobility can therefore be achieved by:

    • removing or relaxing restrictions, where appropriate and possible, to facilitate the flows of payments and transfers for current account transactions; and
    • removing or relaxing restrictions on capital flows, where appropriate and possible, to support foreign direct investment and initiatives to promote capital market development.
  • Free Flow of Skilled Labour

  • To ease the movement of natural persons engaged in goods and services trade and investments, according to the prevailing regulations of the receiving country, ASEAN is working to facilitate the issuance of visas and employment passes for ASEAN professionals and skilled workers who are engaged in cross-border trade and investment-related activities.

    ASEAN is also working towards harmonisation and standardisation with a view to facilitating the free flow of services within the region by:

    • enhancing cooperation among ASEAN University Network (AUN) members to increase mobility for students and staff within the region;
    • developing core competencies and qualifications for job / occupational and trainer skills required in the priority services sectors and other services sectors; and
    • strengthening the research capabilities of each ASEAN member state in terms of promoting skills, job placements, and developing labour market information networks within ASEAN member states.
  • Priority Integration Sectors

  • While it is desirable to achieve regional integration across a wide range of economic sectors, ASEAN has recognised the magnitude of this challenge and has chosen to focus its initial efforts and resources on comprehensively integrating a limited number of priority sectors. This will serve as a catalyst for further ASEAN economic integration.

    Twelve priority integration sectors were identified for accelerated economic integration. Several member states took on a coordinator role for each sector. Each priority integration sector has a roadmap, which combines specific initiatives of the sector with broad initiatives that cut across all sectors, such as trade facilitation measures.

    Raising the efficiency of these key sectors will enable ASEAN to compete for capital and retain value-added economic activity and employment in the region. The sectoral approach allows ASEAN to focus its limited resources on rapid and deep integration in these critical areas. It also allows ASEAN member states to observe and manage the impact of integration and jointly develop a stronger sense of commitment to economic integration prior to a broader implementation.

  • Forms of Foreign Investments

  • Most AMCs allow foreign ownerships in the common types of business organizations. For example, foreign investors may set up representative offices with minimal or no capital requirements as such entity is intended to facilitate sales and marketing as well as act as liaison office. Most foreign investors may choose to set up limited liability companies to develop their business onshore and these are allowed in almost all AMCs. Please refer to Table 3 for a summary of the types of corporate presence that can be set in each AMC, as well as the capital requirements.

  • Food, Agriculture and Forestry

  • The AEC also seeks to enhance intra- and extra-ASEAN trade and long-term competitiveness of the bloc’s food, agriculture and forestry products / commodities. It also aims to promote cooperation, joint approaches and technology transfer among ASEAN member states, international and regional organisations as well as the private sector. Other objectives include promoting ASEAN agricultural cooperatives as a means to strengthen market access to agricultural products, building a network mechanism linking agricultural cooperatives, and fulfilling the purpose of agricultural cooperatives for the benefit of farmers in the region.

  • Dispute Resolution Environment

  • The dispute resolution landscape of ASEAN is not homogeneous, and this needs to be considered in the context of the creation of single market. At present, ASEAN currently comprises of four common law states (some with Shariah law influences), three civil law states, two states with socialist-oriented legal systems, and a state adopting a blended system of laws. Apart from the diversity of legal systems amongst the AMCs, dispute resolution channels available in each AMC also differ – from the availability of institutions and laws supporting arbitration and other forms of alternative dispute resolution to the judicial processes and court structures of each AMC. There are also significant differences in the state of the legal industry between the AMCs. Please see Table 4 for a brief overview of the legal systems and dispute resolution environment of each AMC.

Updated as of 24.11.2015