How ASEAN protects Singaporean investments abroad

Last month the ASEAN Comprehensive Investment Agreement (ACIA) entered into force. Other than the ASEAN Charter itself, the ACIA may be the most important ASEAN agreement for Singaporeans looking to invest abroad.

A review of the situation before the ACIA is needed to understand why. Previously, ASEAN investors were covered by the Framework Agreement on the ASEAN Investment Area (AIA) and the ASEAN Investment Guarantee Agreement (IGA). Yet both agreements had major gaps in coverage which limited cross-border investment within ASEAN.

The AIA agreement detailed areas open for investment within ASEAN, but notably excluded portfolio investments from its coverage.
Hence investment disputes, actual and potential, such as the Malaysia-Singapore CLOB dispute in the late 1990’s or the Thailand-Singapore dispute over the purchase of the Shin Corporation in 2006 would not have been covered.

The IGA protected investments, but notably applied only to investments which were approved in writing and registered by the host country. Thus, the Singaporean investor had to invoke the IGA even before completing
the investment, something akin to forcing your fiancée to sign a prenuptial agreement at the wedding altar!
Needless to say, very few Singaporean investors invoked the IGA while making investments and almost none ever sought its protections.

The ACIA consolidates the AIA and IGA into a single agreement and closes the gaps in coverage. Portfolio investment now falls within the ACIA’s scope.
Although the ACIA still requires the foreign investor to register the investment with the local government, the ACIA streamlines this process and makes it the routine norm, rather than the exception that it had been under the IGA.

With full coverage by the ACIA, Singaporean investors have an additional layer of protection from expropriation and other host country government actions that can adversely impact their investments in ASEAN.
Private investors have recourse to dispute resolution, including arbitration, that will not require lengthy, messy litigation in national courts. Investment areas which are sensitive are clearly delineated by reservation lists established by the ASEAN member states (whose creation caused the 3+ year delay in its entry into force).

The underlying protection guarantees of the ACIA should encourage more Singaporean investments in ASEAN. The ACIA’s provisions should protect investments such as in the Iskandar Malaysia project and through the cross-trading in shares on ASEAN stock exchanges.
Where an ASEAN member state insists on protecting a sector, such as the threatened measures by Indonesia on the DBS-Bank Danamon acquisition, it must do so in a manner consistent with the ACIA.

The ACIA thus reassures Singaporeans looking to invest in ASEAN that their
investments will be protected and treated fairly. It is by no means ideal, and
there will inevitably be hiccups in its administration. Nevertheless, the coming
into force of the ACIA is another major step in the formation of the ASEAN
Economic Community.

Edmund Sim, Partner, Appleton Luff