New Investment Rulemaking in Asia: Between Regionalism and Domestication

My article, ‘New Investment Rulemaking in Asia: Between Regionalism and Domestication,’ provides the most up-to-date and comprehensive account of Asia’s investment rulemaking approach in light of domestic legislative changes and regional trade strategies.  It argues that normative developments of the Association of Southeast Asian Nations (ASEAN) and the Regional Comprehensive Economic Partnership (RCEP) represent the Asian way of pragmatic incrementalism in reforming investment law.  Notably, the neoliberal assumption that prioritizes internationalism based on multilateral efforts no longer dominates national economic policies.  ASEAN and RCEP countries demonstrate the changing priority of regional and national approaches.

To contextualize Asia’s changing regulatory frameworks for investment, I focus on key instruments in the latest wave of global regionalism. In the postwar era, the first wave of regionalism occurred in the 1950s and 1960s, and the second wave dominated economic integration in the 1980s and the 1990s. In the Third Regionalism since the 2000s, a new Asian regionalism has propelled the evolution of regional investment rules in tandem with the domestication of such rules.  There are three unique developments. 

First, mega-regional and comprehensive trade agreements have escalated.  Based on their collective GDP, the RCEP, the United States–Mexico–Canada Agreement, the post-Brexit EU, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are the world’s top four trading blocs.  In particular, the RCEP strengthens ‘ASEAN centrality’ and shows developing countries’ activism in advancing their own trade agendas in response to the US–China trade war and the COVID-19 pandemic.  Moreover, it is now the norm for mega free trade agreements (FTAs) and other trade agreements to cover WTO-extra and plus commitments.  The dichotomy between FTAs and bilateral investment treaties (BITs) became blurred because the former often incorporates investment chapters.  There are now more than 2,500 international investment agreements (IIAs) which include FTAs and BITs that govern investment liberalization and protection.

Second, countries have increased the scope of investment liberalization under their investment laws or legislation on special economic zones and free trade zones.  The practice of ASEAN and RCEP members shows that domestic investment rules led to higher levels of investment liberalization than those of commitments under FTAs and BITs.  These investor-friendly schemes, which have in turn influenced IIAs, evidence that countries’ unilateral acts can fortify mutually reinforcing regional and domestic investment regimes.  New changes to investment laws in China, Indonesia, Singapore and Vietnam clearly reinforce this trend.

Finally, while IIAs continue to grow, the number of new agreements has gradually declined since 2008 due to ongoing reforms associated with the ascending number of investor-state disputes. Other than the multilateral forum of the United Nations Commission on International Trade Law (UNCITRAL) Working Group III, states have resorted to national, bilateral, and regional strategies to implement their agendas.  Prominent cases such as White Industries, Churchill Mining and Planet Mining, and Philip Morris dramatically shaped states’ stances on model BITs and the investor-state dispute settlement (ISDS) mechanism of the CPTPP.

To highlight the Asian practice, my article reviews ASEAN’s approach of pragmatic incrementalism in constructing the ASEAN Comprehensive Investment Agreement and its impact on ISDS and reforms in Laos and Myanmar.  It also deciphers the investment structure under the various ASEAN Plus One FTAs and explains how the absence of the ISDS under the RCEP may change in the future according to RCEP members’ ISDS reform proposals under the UNCITRAL.  Furthermore, it explores how the current reforms are incorporated into Asian agreements, as well as new domestic mechanisms such as the Singapore International Commercial Court that could provide alternative venues for ISDS.  Consequently, Asian countries’ experiences not only energize investment rulemaking in the region, but also provide valuable lessons for the Global South.

Pasha L. Hsieh is Jean Monnet Chair Professor at Singapore Management University Yong Pung How School of Law