22 Sep 2009

Investing in Asia? The ASEAN-Australia-NZ FTA is relevant to you

by Lee Carroll

The AANZFTA is important if you are currently investing in, or are considering investing in, any one of the ten ASEAN member states.

Earlier this year, the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) was signed. In this article we'll pay particular attention to the significance of AANZFTA for investment in the region, and the means for resolving any investment dispute that may arise.

If you are currently investing in, or are considering investing in, any one of the ten ASEAN members (Burma, Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam) or New Zealand, AANZFTA is important to you.

AANZFTA applies to a broad range of investments. The definition of "investment" includes movable and immovable property and other property rights, shares, stocks, bonds and debentures, intellectual property rights, contractual rights, and business concessions.

Importantly, AANZFTA does not apply to a company or other entity which is owned or controlled by an investor of a non-party or an investor of the host State unless the entity has substantive business operations in the territory of another AANZFTA party.

Substantive protections

AANZFTA protects investors of one party against:

  • unfavourable treatment by another party relative to its local investors and their local investments
  • expropriation or nationalisation of the investment, either directly or indirectly, without prompt, adequate and effective compensation. "Indirect expropriation" is understood to mean a taking which substantially deprives the investor of the use, control or enjoyment of his investment, or a taking which deprives the investor of the whole or a significant part of the economic benefit of the investment. AANZFTA requires compensation equivalent to the fair market value of the expropriated investment at the time of expropriation, with interest
  • restrictions on the repatriation of profits, capital gains, dividends, royalties and other income accruing from an investment
  • treatment which is not "fair and equitable". That is, an investor is entitled to due process and a stable, predictable, transparent investment environment

AANZFTA also provides for greater transparency in relation to investments, requiring the prompt publication of laws, regulations, and policies relating thereto.

Notably, there is no "most-favoured-nation" clause in AANZFTA. A "most-favoured-nation" clause requires the host State to treat foreign investment no less favourably than investment from a third country. Arguably, the absence of this standard means that, say, the Philippines favours investment from a Singaporean company to investment from an Australian company, the Australian company may not have a claim (unless a claim can be made out under the fair and equitable standard or some other standard). The same may be said of treatment favouring a non-party, such as India or the UAE.

Dispute resolution

In the event of an investment dispute, the disputing parties are required to resolve, as far as possible, the dispute through consultation. If the dispute is not resolved within 180 days of the receipt by a party of a request for consultation, AANZFTA provides the investor with the right to refer the dispute to conciliation or arbitration, before a three arbitrator tribunal, under the ICSID Rules[1], the UNCITRAL Arbitration Rules (or any other arbitration rules agreed by the disputing parties). There is a three year limitation period in which the investor must submit a claim to conciliation or arbitration, commencing from the time the investor becomes aware, or should reasonably have become aware, of the offending conduct.



[1] The ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings (in the event that both parties are party to the ICSID Convention) or the ICSID Additional Facility Rules (in the event that only one of the parties is party to the ICSID Convention - (note: Burma, Laos and Vietnam are not party to ICSID)).Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.