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Trade SecretsASEAN economic community and inward investmentThe voice of business
About EY’s Global Government & Public Sector Center
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
EY ASEAN Business Services Network
EY Government & Public Sector Leaders
EY ASEAN Business Services Network
ContactAsean Leader
Country Leaders Singapore and Brunei
Malaysia
Thailand and Myanmar
Indonesia
Vietnam, Cambodia and Lao PDR
Philippines
Service Line LeadersAssurance
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