Stephen Thomsen looks at investment climate reform in Southeast Asia and draws lessons for the update of the OECD Policy Framework for Investment currently underway. This presentation was made at the Southeast Asia Regional Forum in Bali, Indonesia, on 24-26 March 2014. Find out more at http://www.oecd.org/daf/inv/investment-policy/seasia.htm - http://www.oecd.org/daf/inv/mne/pfi.htm - http://www.oecd.org/globalrelations/seaforum.htm

1. INVESTMENT CLIMATE REFORM IN
SOUTHEAST ASIA: LESSONS FOR THE PFI
UPDATE
Stephen Thomsen
Head, Investment Policy Reviews, OECD
Global PFI Task Force Meeting
Bali, 24 March 2014

2. Roughly 200 questions grouped into 82 topics.
 A checklist, not a questionnaire
Comprehensive
• Covering 10 policy areas (investment, investment promotion,
competition, trade, tax, corporate governance, CSR, human resource
development, public governance)
• Touching on all types of investors: public & private, foreign &
domestic, large & SME, formal & informal
Non-prescriptive
• No single, uniform approach that will suit all economies at all points
in time and under all conditions. A good investment climate can
accommodate a range of policies. It is also a moving target.
• Policy decisions involve trade-offs.
Policy Framework for Investment (PFI)

3. Governance matters:
• A sound business environment is a process as much as
an outcome. How to make policy matters as much as the
policy itself.
– Policy design, implementation/enforcement, evaluation/review
– Transparency, stability/predictability, coherence, effectiveness
Questions:
• Do the existing questions adequately address trade-offs?
• What areas could be added to the PFI?
• How to strengthen its relevance for SMEs?
• How can we strengthen the links across policy areas?
Policy Framework for Investment (PFI)

4.  Ease of doing business
 Land ownership and registration
 Intellectual property rights
 Non-discrimination
 Contract enforcement
 Expropriation
 Access to justice and alternative dispute resolution
 International investment agreements
Investment Policy

5. 1.1 How does the government ensure that laws and
regulations covering investment, including by SMEs, and
their implementation and enforcement are clear, transparent,
readily accessible and do not impose unnecessary burdens?
2.4 How has the government sought to streamline
administrative procedures to quicken and reduce the cost of
establishing a new investment? […]
10.3 Are administrative burdens on investors measured and
quantified? What procedures exist to identify and reduce
unnecessary burdens, including those on investors? […]
The ease of doing business

6. 2012 2013 2014
Singapore 1 1 1
Malaysia 18 12 6
Thailand 17 18 18
Brunei Darussalam 83 79 59
Viet Nam 98 99 99
Indonesia 129 128 120
Cambodia 138 133 137
Philippines 136 138 108
Lao PDR 165 163 159
Myanmar - - 182
Doing Business in ASEAN
Rankings based on 189 countries as of 2014

7. 1.2 How is the government moving towards progressively
establishing timely, secure and effective methods for
registering land and other forms of property?
Questions:
• What mechanisms exist when acquiring land for large-scale
projects (e.g. infrastructure, mines, dams, plantations) to
ensure that those living on the land are consulted and fairly
compensated and that there is a mechanism to redress
grievances?
• Does the government periodically assess whether restrictions
on foreign ownership of land deter investors?
Land ownership and registration

8. Land Ownership Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam
Private ownership
allowed Yes Yes No Yes No Yes Yes Yes No
Foreign
ownership
allowed No No No Yes No No Yes/No No No
Under which
conditions:
Foreign
ownership of
land is limited
to entities with
majority
Cambodian
ownership.
Foreigners
may not own
land but may
receive long-
term leases
for business
purposes.
Foreign
investors with
registered
capital > USD
500000 are
entitled to
purchase a
land use right
from the state
for residential
or business
purposes.
Land
acquisition is
allowed for
business
purposes
only.
Approval from
MIC required
for lease of
government
land.
Foreign
ownership of
land is limited
except where
FDI>40% for
which leases
are permitted
Foreign
established
entities are
restricted
from owning
vacant land
and land
zoned for
residential
purposes
Foreign
companies
may not own
land, except
those promoted
by the BOI and
oil concessions
or when
provided by
treaty or
ministerial
permission.
Foreigners
may not own
land but may
receive long-
term leases
for business
purposes.
Maximum lease
period allowed 99 years 99 years 50 years 99 years 50 years 75 years 60 years 60 years 70 years
Foreign ownership of land in ASEAN

9. 1.3 Has the government implemented laws and regulations for protecting
IP rights and are there effective enforcement mechanisms? Does the
level of protection encourage innovation and investment by domestic and
foreign firms? How does the government meet the IP needs of SMEs?
Questions:
• How does the government balance the need to foster investment and
innovation with public access to goods, services and knowledge?
• How does the government improve enforcement (public awareness
campaigns, training for officials, specialised IP courts)?
• What mechanisms exist to resolve disputes (IP courts, arbitration and
mediation)?
• Is the existing IP regime suitable in terms of encouraging technology transfers
between foreign and domestic firms?
Intellectual property rights

10. Question 1.6
• Has the government established non-discrimination as a
general principle underpinning laws and regulations governing
investment?
• In the exercise of its right to regulate and to deliver public
services, does the government have mechanisms in place to
ensure transparency of remaining restrictions on international
investment and to periodically review their costs against their
intended purpose?
• Has the government reviewed restrictions affecting the free
transfer of capital and profits and their effect on attracting
international investment?
Non-discrimination

11. Existence of a
single investment
law for both
domestic and
foreign investors
Principle of
national
treatment / non-
discrimination
enshrined in laws
Negative list
approach
Guarantee of
free transfer of
funds provided
by law
Cambodia Yes Yes, except for land / Yes
Lao PDR Yes Yes / Yes
Indonesia Yes Yes Yes Yes
Malaysia No No / Yes
Myanmar Domestic and foreign
investment laws will
be unified
No Yes, but requires
further
clarifications
Yes but with
approval
Philippines 2 investment laws Yes Yes Yes
Thailand 2 investment laws No Yes Yes
Viet Nam Yes Yes Yes Yes
ASEAN approaches to non-discrimination

12. Governments discriminate in many ways among firms, both as a matter
of policy and sometimes inadvertently: between public and private,
large and small, or domestic and foreign (national treatment) – and
sometimes even among foreign firms.
Four principal ways in which governments discriminate against foreign
investors (both entry and operational restrictions):
 Screening (all projects or only those above a threshold or foreign equity
share or all foreign investments)
 Equity restrictions (by sector or overall, for acquisitions or greenfield
projects)
 Restrictions on key personnel (managers, directors, technical experts)
 Other restrictions (land ownership, profit/capital repatriation, branching,
reciprocity, minimum capital requirements, etc.)
Forms of discrimination against foreign
investors

13. • Threshold, specific sectors, mergers and greenfield
• National security, competition, net benefit or economic
needs test
• Burden of proof on investor (Canada) or host
government (Australia)
• Tied to the provision of incentives
• Ex post notification
Different approaches to screening

14. Benefits
• Secures domestic support for an open investment regime
• Allows host government to negotiate more concessions so as to
extract the maximum benefit from each investment project
• May be necessary for major projects with significant potential social
or environmental impacts – both domestic and foreign
Costs
• Administrative cost to government
• Costs to investor: time, legal fees, delays and uncertainty
• All else held equal, screening mechanisms are associated with
lower levels of foreign direct investment
Costs/benefits of screening

15. • If the government screens foreign investment
projects, has it considered alternatives or a more
narrow set of criteria?
• Is the screening process transparent, with clear
criteria within the competence of the agency to
assess?
• Is discretion limited and are there clear timelines
for approval and the possibility of appeal?
Possible PFI questions on screening

16. • Prohibition on investment
• Maximum foreign equity share (5-99%)
• Joint venture requirement
• Mergers and takeovers, greenfield
• Extractive industries: oil, gas, mining
• Infrastructure sectors: telecoms, transport
• Agriculture, fishing
• Services: finance, professional services, retail, media
• Government: health, education, defence
• Few restrictions in manufacturing : cigarettes, alcohol, etc.
Sectoral restrictions

17. Question 8.5
Do laws and regulations restrict the deployment of skilled
workers from an enterprise investing in the host country?
What steps have been taken to unwind unduly restrictive
practices covering the deployment of workers from the
investing enterprise and to reduce delays in granting work
visas?
Restrictions on key personnel

18. • Land
• Key personnel, board of directors
• Capital repatriation
• Minimum capital requirement
• Local content
• Technology transfer
• Export requirement
• Government procurement
• Official aids and subsidies
Other restrictions

19. • Measures only statutory restrictions on FDI (i.e.
where national treatment is not applied)
• Does not include the degree of implementation,
institutional quality or state ownership
• Covers equity restrictions, screening, restrictions
on key personnel and operational restrictions
• Scores currently available for almost 60 countries,
covering 22 sectors.
• Time series available for some countries
• Most ASEAN scores are preliminary
OECD FDI Regulatory Restrictiveness Index

20. OECD FDI Regulatory Restrictiveness Index
(full sample)
Selected economies
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
2013 FDI RR Index Total 2014 FDI RR Index - Screening & Approval
(Open=0; closed=1))

21. ASEAN economies are generally more
restrictive across sectors than OECD
0
0.1
0.2
0.3
0.4
0.5
0.6
OECD ASEAN9
OECD FDI Regulatory Restrictiveness Index (open=0; closed=1)

22. 0
50
100
150
200
250
300
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
The Philippines Myanmar Indonesia Thailand Lao PDR Viet Nam Malaysia Cambodia Singapore
2013 OECD FDI Regulatory Restrictiveness Index 2012 FDI Stocks (current, % of GDP)
OECD FDI Regulatory Restrictiveness Index ,2013(open=0;clsoed=1) 2012 FDI Stocks (% of GDP)
FDI Index scores vs FDI stocks
(% of GDP) in ASEAN9 countries
(Preliminary scores)

23. IDN
NZLMYS
AUS
MMRLAO
VNM
THA
KHM
PHL
0
20
40
60
80
100
120
140
160
180
0 0.1 0.2 0.3 0.4 0.5
2012InwardFDIStocks(%ofGDP)
2013 FDI RR Index (Closed = 1; Open = 0)
Sources: OECD Statistics and IMF estimates. Excludes Iceland, Belgium, Iceland, Jordan and Luxembourg.
Fewer FDI restrictions mean more FDI
More Open
MoreFDI

24. • If there is a negative list, is it subject to periodic review
and is there a mechanism to reduce restrictions over
time?
• Does the government ensure that the negative list is
complete and with a sufficient degree of detail?
• Does the government benchmark its restrictiveness
against other countries?
Possible additional PFI questions:
Negative lists

25. 1.5 Does the government maintain a policy of timely, adequate and
effective compensation for expropriation also consistent with its
obligations under international law? What explicit and well-defined
limits on the ability to expropriate has the government established?
What independent channels exist for reviewing the exercise of this
power or for contesting it?
Questions:
Include notion of state’s right to expropriate for public purposes?
How should indirect expropriation be treated? How to balance the
benefits in terms of investor protection from expanding the scope of
expropriation provisions against the perceived potential risks from
frivolous claims?
Expropriation

26. ACIA protects against direct & indirect expropriation, when it is done:
 For public purposes;
 In a non-discriminatory manner;
 Against prompt, adequate and effective compensation, in accordance
with due process of law.
 Whether a measure amounts to indirect expropriation is to be determined
on a case-by-case basis
What countries provide:
 Most AMS protect against expropriation (direct & indirect) and grant fair
compensation, in accordance with international standards cited above
 Countries are generally silent on the criteria used to qualify an indirect
expropriation
 A few AMS (e.g. Cambodia, Myanmar) protect against nationalisation
only and are silent on methods of compensation
Protecting against expropriation in AMS

27. Question 1.7
Are investment policy authorities working with their counterparts in
other economies to expand international treaties on the promotion and
protection of investment?
Does the government periodically review existing international treaties
and commitments to determine whether these provisions create a more
attractive environment for investment?
What measures exist to ensure effective compliance with the country’s
commitments under its international investment agreements?
Questions
• How to ensure adequate policy space?
• How to ensure awareness of international investment-related
commitments among ministries and other relevant public bodies?
International investment agreements

28. 6
21
63
23
67
6
35
40 40
60
2
0 1 0
4
0 1
14
7
23 3 3 3 3 3 3 3 3 3
0
7 7 7
4 4 5 4
6
8
0
10
20
30
40
50
60
70
80
Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar The
Philippines
Singapore Thailand Vietnam
BIT
FTA
ASEAN FTA
BIT with AMS
IIAs in force in the ASEAN region
Source: UNCTAD, ASEAN, World Trade Institute

29. Contract enforcement and dispute resolution
1.4 Is the system of contract enforcement effective and widely accessible to all
investors? What alternative systems of dispute settlement has the government
established to ensure the widest possible scope of protection at a reasonable
cost?
International arbitration instruments
1.8 Has the government ratified and implemented binding international
arbitration instruments for the settlement of investment disputes?
Dispute settlement

30. Protection
against
expropriation
in investment
laws
Possibility for
recourse to
investment
arbitration
provided by law
Adherence to int’l
conventions on
arbitration (ICSID &
NY Conventions)
Adherence to
IIAs (including
BITs and FTAs)
Cambodia Yes, but
incomplete
Yes Yes Yes
Lao Yes No Not a member of ICSID Yes
Indonesia Yes Yes Yes Yes
Malaysia Yes Yes Yes Yes
Myanmar Yes, but
incomplete
Yes, but unclear Not a member of ICSID
Adhered to NY
Convention in 2013
Yes
Philippines Yes Yes Yes Yes
Thailand Yes, but
incomplete
Yes ICISD Convention
signed but not yet
ratified
Yes
Vietnam Yes Yes Not a member of ICSID Yes
Approaches to international investment agreements
in ASEAN

31. Policy Framework for Investment (and User’s Toolkit)
www.oecd.org/investment/pfi.htm
www.oecd.org/investment/toolkit/
FDI Index
www.oecd.org/investment/fdiindex.htm
Investment Policy Reviews
www.oecd.org/investment/countryreviews.htm
ASEAN-OECD Investment Programme
www.oecd.org/investment/seasia.htm
ASEAN Investment website
www.investasean.asean.org
For further information