Trade SecretsASEAN economic community and inward investmentThe voice of business

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Around the world, governments

Achieving regional economic integration in ASEAN by 2015.

Foreword

ContentsIntroduction 4

Getting down to work in ASEAN 10

Cross-border trade 26

Investment bodies 36

4 | Trade Secrets ASEAN economic community and inward investment

ASEAN

2015

5 |

The AEC and its integration targets of 2015

• • • •

AEC Work in Progress

2

2 Asian Development Bank and Institute of Southeast Asian Studies

1Introduction

6 | Trade Secrets ASEAN economic community and inward investment

Introduction

The importance of investment

Focusing on FDI: the aim of this report

7 |

“ If we accept that the total FDI attracted could be regarded as a general indicator of the overall progress and success of the AEC development, then by focusing our analysis on it, we may reveal some of the underlying issues and solutions to the 2015 impasse.”

8 | Trade Secrets ASEAN economic community and inward investment

Implementation issues that businesses face today

Setting up businesses

Obstacles and transparency issues in cross-border trade

Strengthening the functions of investment promotion bodies

Asian Development Bank and Institute of Southeast Asian Studies

Introduction

9 |

Looking ahead: What are the next FDI issues?

10 | Trade Secrets ASEAN economic community and inward investment

3 steps Some ASEAN countries require a three-step process to legalize documents: • Notarization•

of Foreign Affairs•

ASEAN country

11 |

Overview

Common issues and obstacles

Language issues

Screening process and pre-entry requirements

Differences in laws and regulations and gaps in standards

2Getting down to work in ASEAN

Getting down to work in ASEAN l Challenges and solutions

Table 1: Setting up businesses in ASEAN countriesForeign direct investment - Setting up business entitites

Singapore Thailand Indonesia Vietnam

I. Regulatory environment

Governing ministry Investment

Applicable lawsCode, the Act

Business or commercial license

Expiry date of business license

Usaha has

Foreign ownership restrictions

12 | Trade Secrets

Philippines Cambodia Lao PDR Brunei Darussalam

Commerce

Investment

pursuant to law. Among these are defense or law enforcement-related

13 |

Getting down to work in ASEAN l Challenges and solutions

The World Bank website

Table 1: Setting up businesses in ASEAN countries (cont’d)

Foreign direct investment - Setting up business entitites

Singapore Thailand Indonesia Vietnam

Other licenses

Ease of starting a business (out of 189 economies from the World Bank’s Doing Business report4)

(a) Number of procedures

(b) Number of days 6

II. Type of entities

Common business structures for foreign investors

III. Comparison for company (most common entity)

A. Corporate/statutory requirement

1. Shareholder

Minimum requirement

2 shareholders

shareholders must

2 shareholders

Must be citizen or local resident

second shareholder

Corporate shareholder

14 | Trade Secrets

Philippines Cambodia Lao PDR Brunei Darussalam

6

72

shareholders

2 shareholders

shareholders

15 |

16 | Trade Secrets

Table 1: Setting up businesses in ASEAN countries (cont’d)

Foreign direct investment - Setting up business entitites

Singapore Thailand Indonesia Vietnam

(a) Director

Corporate director

Minimum requirement

2

Resident status

Legal representative

(b) Company secretary

Corporate secretary

Resident status

Minimum requirement

3. Capital requirement

(a) Types of capital

Authorized capital (maximum amount allowed to be issued, can be revised any time)

(b) Paid-up capital

Shares share

shareshares

shareholders

Forms of contribution into capital

Capital must be in local currency

Getting down to work in ASEAN l Challenges and solutionsGetting down to work in ASEAN l Challenges and solutions

17 |

Philippines Cambodia Lao PDR Brunei Darussalam

Cash

Getting down to work in ASEAN l Challenges and solutions

18 | Trade Secrets ASEAN economic community and inward investment18 | Trade Secrets

Table 1: Setting up businesses in ASEAN countries (cont’d)

Foreign direct investment - Setting up business entitites

Singapore Thailand Indonesia Vietnam

Minimum paid-up capital or capital contribution

RM2share

as real estate and

Prescribed contribution schedule

4. Constitutions/bylaws

Memorandum and Memorandum and Memorandum and Charter

5. Execution of documents

All documents must

or local language and

All documents must

local language

All documents

where document

language

6. Language requirement

language used for

and local language

19 | 19 |

Philippines Cambodia Lao PDR Brunei Darussalam

per share

per share

All documents executed

executed

All documents must

language

documents such as

language used for

local language

The World Bank website

20 | Trade Secrets ASEAN economic community and inward investment

Practical approach from foreign investors’ perspective

How easy is it to do business in ASEAN countries from the perspective of a foreign investor?

Lack of clarity and uncertainty in local laws, government policies and legal environment

Complicated procedures and long delays

recent Doing Business report5, the gap, or to some,

Getting down to work in ASEAN l Challenges and solutions

21 |

Multi-layered approvals for licenses

“ From the business and investors’ point of view, amending ASEAN policies is the most logical and effective approach towards integration and narrowing the disparity to facilitate the ease of starting business across the region.”

22 | Trade Secrets ASEAN economic community and inward investment

the red tape.

Legalization of documents

overall process.

Regulatory requirements

more often than not, do not have Foreign ownership restriction

3 to 15

Getting down to work in ASEAN l Challenges and solutions

23 |

Politics and bilateral relations

24 | Trade Secrets ASEAN economic community and inward investment

Recommendations

Three-pronged approach:

Regional level

not lost.

•

• Regulatory process

procedures from the three-step

• Standardization of information requirement

• One-stop registry exchange

• ASEAN information exchange Governments should develop a

• ASEAN portal

• Dialogue session

Getting down to work in ASEAN l Challenges and solutions

25 |

National level

• Public consultation

local governments. Therefore,

• Targeted timeline for implementation

for the changes.

Local government level

• Language problem

• of documentation forms and other materials

• Continual dialogue

to ensure that the processes and

Conclusion

level measures that governments can

a whole.

26 | Trade Secrets ASEAN economic community and inward investment

6 states almost all goods that are

27 |

Navigating cross-border trade issues in ASEAN

Types of barriers

Examples of tariff barriers

• • • • •

value-added tax or

Examples of non-tariff barriers

• • •

• •

thresholds

• •

•

3Cross-border trade

28 | Trade Secrets ASEAN economic community and inward investment

Doing Business report6

6

Non-tariff measures

7 and traders

6 The World Bank website

7 ASEAN website

Cross-border trade l Navigating through the maze

29 |

together account for almost half of a

Thailand

products at other ports where the

than lose the revenue to another port.

ASEAN website

30 | Trade Secrets ASEAN economic community and inward investment

Indonesia

Cross-border trade l Navigating through the maze

31 |

ASEAN single window

trusted source.

excellent platform to push through

Another recent and related development

4 to 26

32 | Trade Secrets ASEAN economic community and inward investment

ASEAN Trade in Goods Agreement

Exporting country

Importing country

Cross-border trade l Navigating through the maze

33 |

Form D – list of minor discrepancies

Minor discrepancy issue

2

6

7

34 | Trade Secrets ASEAN economic community and inward investment

• Wrong origin criterion

value content rule, the exporter

rule as no such natural resources

• Wrong type of CO applied

under that as well.

• Invoice details vs. Form D details

In several cases, exporters use trade

• Box 13 – tick boxes

goods. We understand that there are two

not agree upon.

Cross-border trade l Navigating through the maze

35 |

government level.

Regional Comprehensive Economic Partnership (RCEP)

36 | Trade Secrets ASEAN economic community and inward investment

US$112.8b Total inbound FDI into ASEAN in 2012

37 |

“ A free and open investment regime is key to enhancing ASEAN’s competitiveness in attracting foreign direct investment (FDI) as well as

of new investments and reinvestments will promote and ensure dynamic development of ASEAN economies” — ASEAN Economic Community Blueprint, 2006.

4Investment bodies

38 | Trade Secrets ASEAN economic community and inward investment

AEC initiatives

have hoped.

Roles of investment bodies

appear to have greater success

-10,000.00

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

‘87 ‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11

Indonesia Malaysia Philippines

Singapore Thailand Vietnam

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

‘87 ‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11

ASEAN Total (for China)

Diagram 2: Inbound FDI (in US$ millions) in ASEAN region versus China

Diagram 1: Inbound FDI (in US$ millions) in ASEAN countries

Investment bodies l Lighthouse for foreign direct investment

Asian Development Bank and Institute of Southeast Asian Studies

39 |

•

•

•

•

40 | Trade Secrets ASEAN economic community and inward investment

Table 2: Comparison table for select ASEAN member countries

Foreign direct investment - Setting up business entitites

Singapore Indonesia

Primary administering body for inbound FDI

Presence of regional administering bodies

High-level objective of administering body

Hierarchy – under purview of which ministry

Size of the organization

Presence of

Functions

Leads discussions with inbound investors

Administrator of incentives

Investment bodies l Lighthouse for foreign direct investment

41 |

Thailand Philippines Vietnam

department of the

42 | Trade Secrets ASEAN economic community and inward investment

Table 2: Comparison table for select ASEAN member countries (cont’d)

Foreign direct investment - Setting up business entitites

Singapore Indonesia

Ability to approve or

(whether tax or cash)

Ability to approve or

or regulatory requirements

Ability to approve

availability

state government

Speed of approval for regulatory approvals

Speed of approval for incentive approvals

the approval

Extent of documentation required in discussions shareholders

Ability to exercise

customize requests from companies

Investment bodies l Lighthouse for foreign direct investment

43 |

Thailand Philippines Vietnam

Accept or refuse proposal

of completed documents

Accept or refuse proposal

forecast, source of fund,

44 | Trade Secrets ASEAN economic community and inward investment

Recommendations

•

•

•

Investment bodies l Lighthouse for foreign direct investment

45 |

46 | Trade Secrets ASEAN economic community and inward investment

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