AIA Council returns to Manila

1. The AIA Council met for its Tenth Meeting on 23 August 2007 at Makati City, Philippines to review developments in the AIA for the past year, as well as to discuss policy options in attracting more foreign direct investment (FDI) into ASEAN. It may be recalled that the Inaugural Meeting of the AIA Council was held ten years ago in Manila on 8 October 1998 when the Framework Agreement establishing the AIA was signed by the Ministers.

ASEAN continues to attract FDI

2. The Council was pleased to note that ASEAN FDI Flows for 2006 reached US$52.4 billion, representing a 28% year-on-year increase from the previous year (US$41 billion). This growth reaffirms ASEAN as a favoured investment destination, as well as sustains the high FDI Flows into the region, which from 2005 have already superseded the height of FDI Flows prior to the Asian Financial Crisis (Figure 1).

3. Preliminary FDI Flows data for the first quarter of 2007 grew by 9% to US$15 billion from US$13.7 billion in the same period last year. The major sources of FDI into ASEAN in 2006 were Japan, the United Kingdom, the United States of America, the Netherlands and Germany. Together, these sources accounted for almost half of total FDI Flows into ASEAN. The fastest growing sources of FDI, on the other hand, are Republic of Korea and China at 90% (from US$578 million in 2005 to US$1 billion in 2006) and 87% (from US$502 million in 2005 to US$937 million in 2006), respectively.

4. Meanwhile, intra-ASEAN FDI grew by 66% from US$3.8 billion in 2005 to US$6.2 billion in 2006. Intra-ASEAN FDI accounted for over 10% of total FDI Flows into ASEAN.

5. The Council noted that manufacturing, financial intermediation and related services, including insurance, trade/commerce and services were the top recipients of FDI and together they accounted for 76% of total FDI Flows in 2006. Remarkable growth in FDI were observed in the financial intermediation and related services sectors, which increased three-fold from US$4.4 billion in 2005 to US$12.4 billion in 2006 and construction, which more than doubled from US$226 million in 2005 to US$523 million in 2006.

The ASEAN manufacturing sector grows from strength to strength

6. Consistent with the growth in BOP FDI is the increase in Approved Manufacturing FDI (Figure 2) in 2006, which grew by 27% to US$32.3 billion from US$25.4 billion in 2005. The top five sectors with substantial FDI interest were radio, television and communication equipment & apparatus; chemicals & chemical products; basic metals; machinery & equipment; and non-metallic mineral products.

7. Moreover, preliminary figures for Approved Manufacturing FDI in the 1st half of 2007 has more than doubled to US$30.8 billion from US$12.4 billion in the 1st half of 2006.

A forward-looking investment agreement

8. Whilst welcoming ASEAN’s positive FDI performance for 2006, the Council agreed that the region should be more aggressive in its efforts at attracting FDI. Ten years after the signing of the AIA Agreement and in support of the development of an ASEAN Economic Community (AEC) Blueprint, the AIA Council agreed to revise the Framework Agreement on the ASEAN Investment Area and combine it with the ASEAN Agreement on the Promotion and Protection of Investments into a single ASEAN Comprehensive Investment Agreement (ACIA).

9. Based on the agreed Guiding Principles of the Revised Agreement, the key features of ACIA are:

  • Comprehensive investment liberalisation and protection provisions;
  • Clear timelines for investment liberalisation in line with the ASEAN Economic Community;
  • Benefits extended to foreign-owned ASEAN-based investors;
  • Preservation of AIA preferential treatment; and
  • A more liberal, facilitative, transparent and competitive investment environment.

10. The Council agreed to complete the ACIA by the 11th AIA Council Meeting in Singapore in August 2008.

Investment promotion drive intensifies

11. The Council lauded the successful conduct of the ASEAN Investment Forum held on 22 August 2007, which included business matching and site visits to selected companies and industrial estates/IT parks. The Council also welcomed the proposed outward investment missions of ASEAN 6 to CLMV in early 2008.

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Attendance:

The Tenth AIA Council Meeting was chaired by H.E. Peter B. Favila, Secretary of the Department of Trade and Industry, Philippines and attended by:

H.E. Pehin Dato Lim Jock Seng

Second Minister

Ministry of Foreign Affairs and Trade

Brunei Darussalam

H.E. Kong Vibol

First Secretary of State

Ministry of Economy and Finance

Vice Chairman of the Council for the Development of Cambodia

Cambodia

H.E. Muhammad Lutfi

Chairman

Investment Coordinating Board

Indonesia

H.E. Dr. Nam Viyaketh

Minister

Ministry of Industry and Commerce

Lao PDR

Dr. Rebecca Fatima Sta. Maria

Deputy Secretary-General (Trade)

Ministry of International Trade and Industry

Malaysia

H.E. U. Soe Tha

Minister

Ministry of National Planning and Economic Development

Myanmar

H.E. Lim Hng Kiang

Minister

Ministry of Trade and Industry

Singapore

H.E. Satit Chanjavanakul

Secretary-General

Office of the Board of Investment

Thailand

H.E. Dr. Nguyen Bich Dat

Vice Minister

Ministry of Planning and Investment

Viet Nam

H.E. Ong Keng Yong

Secretary-General of ASEAN