Investment Protection under the Proposed ASEAN-United States Free Trade Agreement

By Kahn, Jordan C. | Suffolk Transnational Law Review, Fall 2010 | Go to article overview

Investment Protection under the Proposed ASEAN-United States Free Trade Agreement


Kahn, Jordan C., Suffolk Transnational Law Review


I. INTRODUCTION

In October 2009, U.S. Senator Richard Lugar (R-IN) introduced legislation to initiate free trade negotiations between the United States and the Association of Southeast Asian Nations (ASEAN). (1) This article examines the proposed ASEAN-U.S. free trade agreement, focusing on the central element of arbitration. Part II provides background on the ten-country ASEAN and its progress towards improving the regional economy. Part III provides background on free trade agreements (FTAs) and the recent proliferation of these agreements entered into by Asian governments, including the agreement between ASEAN, Australia and New Zealand which came into effect in 2010. This agreement gives foreign investors recourse through arbitration. Part IV explains that the proposed ASEAN-United States free trade agreement will undoubtedly include this feature. Lastly, Part V describes substantive protections that will maximize the efficacy of the ASEAN-United States agreement. By building upon their previous efforts, the United States and ASEAN can promote economic activity between them and across Southeast Asia.

II. BACKGROUND ON ASEAN, AFTA, AND AIA

Southeast Asia was a political hotbed during the 1960s. Its governments agreed upon "a fundamental need to develop a regional forum to alleviate pressures within the region and to promote economic growth between the countries." (2) Thailand, Indonesia, Malaysia, the Philippines, and Singapore created ASEAN by executing the Bangkok Declaration on August 8, 1967. The initial ASEAN objectives were "to alleviate intra-ASEAN tensions, to reduce the regional influence of external actors, and to promote the socioeconomic development of its member states to further hedge against Communist insurgency." (3)

ASEAN eventually expanded to include the five other Southeast Asian countries. Brunei joined in 1984, after receiving independence from the United Kingdom. (4) One decade later, four additional countries joined ASEAN: Vietnam in 1995, Laos and Myanmar in 1997, and Cambodia in 1999. (5) ASEAN regularly convenes at summits, and its decision-making is based on consensus. The "ASEAN way" involving diplomacy as opposed to confrontation is manifest in the "strong cohesion that now exists between the ASEAN member states." (6)

Decades after its formation, ASEAN transitioned into an institution fostering regional economic integration. (7) Beginning at its January 1992 meeting in Singapore, ASEAN executed a series of agreements, collectively known as the ASEAN Free Trade Agreement (AFTA), which seek to liberalize economic activity within the region. (8) The primary mechanism that AFTA employs is the reduction of tariffs on goods originating within ASEAN; (9) members remain free to set their own tariffs for goods imported from outside ASEAN. Specifically, AFTA sets targets for the gradual reduction of these tariffs up to five percent. (10) This approach seeks to stimulate intra-ASEAN trade because, under the theory of comparative advantage, lowered tariffs will increase economic transactions amongst ASEAN members, thereby improving the regional economy. (11)

In 1997, Southeast Asia experienced a severe economic crisis that originated in Thailand and spread to Indonesia, crippling that country. (12) Investment poured out of the region. (13) Each affected member had to chart its own path towards economic recovery because ASEAN was unable to coordinate a response. (14) This shortcoming prompted a two-pronged reaction by ASEAN at its December 1998 meeting in Hanoi, Vietnam, in an effort to alleviate the impact of the crisis and prevent reoccurrences. In its first response, ASEAN accelerated the AFTA tariff reduction schedule, (15) although the later-added ASEAN members were given additional time to comply. (16) As a result of this acceleration, intra-regional tariffs were reduced dramatically; now more than 99% of all goods are traded within a 0-5% tariff rate between the first six members, with the four newest members "not far behind" in implementing tariff reduction. …

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