I Introduction
Global crises are rapidly transforming the international regime. The neoliberal international order that underpins the normative foundation of postwar economic institutions is facing unprecedented threats. The collapse of the World Trade Organization (WTO) appeals mechanism, the COVID-19 pandemic, intensifying United States (US)–China conflicts, and Ukraine and Taiwan Strait confrontations have aggravated diverse forms of trade protectionism.Footnote 1 New trade and investment roadmaps prompted the Indo-Pacific strategies of the US, the European Union (EU), the Association of Southeast Asian Nations (ASEAN), as well as China’s Belt and Road Initiative.Footnote 2 Regional and global supply chains for commodities ranging from raw materials to semiconductor chips are imperative to these stakeholders.
Amid geopolitical challenges, international law has evolved to reflect the reality of the multipolar world. A new dynamic is evolving: Inter-Asian Law (IAL), which reinforces the cross-fertilization of legal developments between different regional agreements in Asia and between these agreements and domestic legal reforms. Pursuant to the conceptual framework of the volume this chapter explores how IAL has developed procedurally through multilayered investment agreements. It argues that the legalization of the so-called ASEAN way has propelled the normative evolution of IAL, which departs from the Western approach premised on the Washington Consensus.Footnote 3 In other words, the ASEAN way has served as a formula, resulting in IAL as the product.
The chapter sheds light on core questions under the book’s analytical framework. It illustrates the types and methods of interactions among Asian jurisdictions and beyond, as well as actors and intermediaries that enable Asian governments to align interests via non-Western-dominated plurilateral platforms. This development demonstrates Asian countries’ pursuit of their own legal models, which will decrease their past dependency on transplanting EU and US rules and fortify Asia’s collective power in shaping international law. Markedly, the Asian model for constructing IAL in the context of investment law has been more prominent in the unique procedure of making multilateral law rather than in creating new substantive legal requirements.
The rise of Asia provides the contextual background for IAL. Undoubtedly, Asian economies have become the locomotives of global trade. Asia will contribute to over half of global gross domestic product (GDP) by 2050, restoring the region to the dominant economic status that it once possessed before the Industrial Revolution.Footnote 4 Moreover, in the next decade, China will overtake the US to be the world’s largest economy.Footnote 5 As a ten-country bloc, ASEAN will ascend to the equivalent of the fourth largest economy and is expected to admit Timor-Leste as the eleventh member.Footnote 6 Complementary to the ASEAN Economic Community (AEC), the six “ASEAN Plus One” free trade agreements (FTAs) have built the legal architecture of new Asian regionalism.Footnote 7
The ASEAN-centered framework culminated in the fifteen-party Regional Comprehensive Economic Partnership (RCEP), which entered into force in January 2022 and became the world’s largest FTA by economic scale.Footnote 8 This mega-FTA constitutes 30 percent of global GDP and 26.2 percent of foreign direct investment (FDI) inflows.Footnote 9 In contrast to Brussels’ focus on bilateral pacts with Asian countries and Washington’s Indo-Pacific Economic Framework for Prosperity without market access, ASEAN and the RCEP manifest Asian approaches to global governance.
Investment law provides a unique case study for IAL. The absence of consensus among WTO members removed investment from the WTO Doha agenda. The ambit of present WTO negotiations on “investment facilitation for development” is limited and excludes investment liberalization and protection.Footnote 10 A core issue concerning investment is investor–state dispute settlement (ISDS) that has encountered massive backlash from the Global South. The United Nations Commission on International Trade Law (UNCITRAL) entrusted Working Group III to discuss procedural reforms for ISDS under investment treaties.Footnote 11 Asian governments seem to lack common positions on these reforms at the multilateral level.Footnote 12 Hence, it is vital to examine their agendas on investment law at the regional and national levels to comprehend the evolution of IAL. These experiences exhibit ASEAN’s and the RCEP’s legal approach of pragmatic incrementalism and provide valuable lessons for developing countries to consider alternatives to the Washington Consensus.
After this introduction, Section II unveils the development of investment issues during three waves of global regionalism. It also explores salient features of investment rules in modern FTAs, bilateral investment agreements (BITs), key domestic laws, and ISDS cases. Section III explores the evolution of ASEAN law with a focus on the AEC’s new investment rules and services commitments on foreign equity restrictions, as well as the ISDS mechanism. Section IV examines the RCEP’s investment and services rules and its omission of ISDS that reflect the new consensus forged under the ASEAN Plus One structure. Section V concludes by highlighting the legal and political implications of investment reforms on IAL.
II Inter-Asian Law in Global Regionalism
After World War II, three waves of global regionalism shaped international law and trade. IAL is paramount in the latest wave of regionalism, which I called the “Third Regionalism,” that has yielded a significant impact on investment rules.Footnote 13 During the previous periods, Asian countries predominantly followed the normative requirements that the US created. The Bretton Woods system and the Washington Consensus underscored the neoliberal international order that enabled Asian countries to recover from the devastating war.
Asian nations had neither the intention nor the power to challenge the rules to sustain “embedded liberalism.”Footnote 14 However, the Asian financial crisis and the overriding disappointment with West-dominated monetary institutions invigorated paradigm shifts. The subsequent formation of “ASEAN Plus Three” and “ASEAN Plus Six” frameworks and rising populist protectionism in the US prompted Asia to embark on a divergent path, expediting the growth of IAL. To verify this analysis, I explain below the investment law developments in the three waves of global regionalism.
In particular, the evolution to the Third Regionalism demonstrates the emphasis on legal cooperation and harmonization, which feature the major type and method of interaction among Asian states. The ASEAN-centered architecture, including ASEAN agreements and the RCEP, has become institutional, plurilateral platforms for Asian governments to develop IAL. Divergent from the first two waves of regionalism, these platforms reflect the Asian or ASEAN way, at least procedurally, in shaping the regional order. The notable procedural dimension is pragmatic incrementalism, distinct from the legalization concept commonly understood in the West.
Coined by Jagdish Bhagwati, the term “First Regionalism,” refers to trade pacts in the 1950s and 1960s.Footnote 15 Although Washington was preoccupied with multilateralism in the Kennedy Round, it supported the European Economic Community for countering Soviet influences.Footnote 16 ASEAN’s founding signified the inception of Asian regionalism, but the bloc was built predominantly for security purposes of resisting Communist expansions rather than for economic integration.Footnote 17 As Bhagwati noted, most trade initiatives merely achieved a marginal trade-creation effect owing to political interventions.Footnote 18 ASEAN was not an exception.
In this era, investment pacts began to surface. Asian countries often succumbed to the normative demands of the Global North.Footnote 19 To illustrate, US Friendship, Commerce and Navigation (FCN) Treaties incorporated investment issues.Footnote 20 A key objective of FCN Treaties was to ensure the protection and security of foreign investment and to guarantee prompt, adequate, and effective compensation in the case of expropriation. Compared with modern investment treaties, a major enforcement weakness of FCN Treaties is the absence of detailed procedural rules for dispute settlement.
The 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) was a breakthrough in international law, as the ISDS mechanism became available at the multilateral level. While the first BIT was concluded between West Germany and Pakistan in 1959, the 1968 Netherlands–Indonesia BIT marked the first investment pact with ISDS provisions, allowing an investor to bring claims against the host state to the Center created under the ICSID Convention.Footnote 21 Many Asian countries joined the Group of 77 in passing UN resolutions to establish “a New International Economic Order (NIEO)” in the 1970s.Footnote 22 Premised on absolute sovereignty over natural resources, NIEO principles departed from the West-preferred compensation standards and mandated that local courts rather than international tribunals settle investment disputes.Footnote 23 Nevertheless, the NIEO movement quickly failed due to objections from the powerful trans-Atlantic alliance. The Bretton Woods institutions and modern, neoliberal BITs reinforced the Washington Consensus.
During the Uruguay Round, the “Second Regionalism” occurred in the 1980s and 1990s. The EU and the North American Free Trade Agreement (NAFTA) provoked a domino effect in Asia.Footnote 24 ASEAN expedited its internal integration by establishing the ASEAN Free Trade Area in 1992.Footnote 25 The Asia-Pacific Economic Cooperation (APEC) was also founded as a soft-law institution that facilitates dialogues among countries across the Pacific. The 1994 APEC Non-Binding Investment Principles indicated the consensus of twenty-one members to construct international investment standards.Footnote 26
Although initial ASEAN and APEC initiatives could arguably be interpreted as IAL, they were largely rule-takers instead of rule-makers. These initiatives simply reflect the universalization of “Western” law and lack unique “Asian” legal features. The watershed event in the Second Regionalism was the Asian financial crisis. Frustrations with the responses of US-led monetary institutions prompted Asian states to ink the Chiang Mai Initiative, which covers ten ASEAN countries plus China, Japan, and Korea.Footnote 27 This ASEAN Plus Three framework later extended to trade and investment and evolved to be the ASEAN Plus Six structure. The addition of Australia, India, and New Zealand buttressed the concept of “ASEAN centrality” in regional security and economic architectures. It has also energized the IAL development in investment rulemaking.
Following the two waves of global regionalism that Bhagwati observed, the Third Regionalism has emerged in tandem with the Doha Round since the 2000s. Structural geopolitical and economic changes galvanized new Asian regionalism that expedited IAL. There are noteworthy characteristics of economic agreements and national legislation in the arena of investment law. First, beyond tariff and services liberalization, the inclusion of WTO-extra and WTO-plus commitments in trade pacts became the norm. Modern agreements seldom focus only on tariff and services liberalization. The scopes of FTAs and BITs often overlap because the former encompass investment chapters. The number of these international investment agreements, including FTAs and BITs that govern investment liberalization and protection, has exceeded 2,600.Footnote 28
Other than the AEC and the six ASEAN Plus One FTAs that include investment provisions, new mega-regional trade agreements provide an unparalleled impetus to IAL. Comprising a significant number of Asia-Pacific countries with massive economies of scale, the global influence of the ACIA (Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)) and the RCEP should not be underestimated. The Trump administration’s decision to withdraw from the Trans-Pacific Partnership (TPP) crippled the dominance of the Washington Consensus. The leadership of Japan enabled the conclusion of the technically “new” agreement, the CPTPP that is largely based on TPP provisions.Footnote 29
Undeniably, US law significantly shaped the TPP. Yet, its suspended provisions under the CPTPP reflect the preferred model for IAL. In particular, those provisions that narrow ISDS and the scope of intellectual property rights highlight Asian states’ concerns about neoliberal trade pacts. Furthermore, the RCEP strengthens ASEAN centrality and exhibits developing countries’ activism in norm-shaping in response to the COVID-19 pandemic and trade protectionism.Footnote 30 Compared with the CPTPP, the RCEP focuses more on development and preserving countries’ regulatory power and is therefore more acceptable to developing countries in Asia. As neither the US nor the EU is a party to, or intends to join, these two mega-FTAs, their normative impact on IAL is perceived to be diminishing.
Second, conventional understanding suggests that international agreements shaped by developed nations often “compel” developing countries to accede to the former’s demands. This one-way, top-down approach no longer holds true in inter-Asian investment law-making. As some ASEAN and RCEP countries have demonstrated, their domestic investment rules achieved higher levels of investment liberalization than what they committed under FTAs and BITs. In fact, these unilateral, investor-friendly schemes have influenced regional pacts that later energized the investment reforms of other developing countries. This paradigm shift signifies legal cooperation and harmonization between the Global South.
For example, China experienced the “pre-establishment national treatment” model and deregulated market access procedures in the Shanghai Pilot Free Trade Zone and the Hainan Free Trade Port.Footnote 31 China’s recent investment agreements and the 2019 Foreign Investment Law also incorporated these reforms.Footnote 32 As the US–China trade war led to the extra tariffs on “made in China” products, it is a trend for multinational enterprises to relocate their manufacturing bases to Vietnam, resulting in a substantial increase in the country’s foreign investment.
Akin to China, Vietnam has separate rules for domestic and foreign investments. For the first time, Vietnam’s 2020 Law of Foreign Investment transformed from the positive list to the negative list approach to market access.Footnote 33 Foreign investments are granted national treatment if they fall outside the Prohibited List and the Market Entry List, where investments are subject to conditions determined by ministries.Footnote 34 Vietnam’s investment reforms have developed in line with its commitments under the CPTPP and the EU–Vietnam FTA. The present gaps between FTA provisions and domestic laws exist in areas such as non-tariff barriers to investment in the renewable energy sector, and in financial and telecommunications services.Footnote 35 Vietnam’s rapid improvement in investment regimes also provides a model for ASEAN’s least developed economies (Cambodia, Laos, and Myanmar) for their domestic reforms and investment agreement negotiations.
Lastly, ISDS reforms at regional and national levels illustrate an important feature of IAL in the Third Regionalism. Indonesia is a key ASEAN and RCEP country. The ISDS claims that Indonesia has encountered have accelerated its ISDS reform agenda. The intertwined cases of Churchill Mining and Planet Mining fundamentally altered Jakarta’s position on ISDS. After Indonesia’s provincial government revoked their mining licenses for a coal project, Churchill Mining, a British-listed company, and its Australian subsidiary, Planet Mining, sought damages for more than US$1 billion.Footnote 36 The ICSID arbitration that the two companies initiated was based on Indonesia’s BITs with the United Kingdom (UK) and Australia. The Tribunal rejected Indonesia’s jurisdictional challenges on the ground that the government had consented to ICSID arbitration under the respective BITs.Footnote 37 In response, Indonesia announced its intention to terminate all of its sixty-seven BITs and has terminated more than thirty of them.Footnote 38 Indonesia’s termination of these BITs will make ASEAN’s internal and external pacts the primary avenues by which foreign investors bring ISDS claims against the country.
The case of Philip Morris resulted in an even greater impact. In this case, US-based Philip Morris challenged Australia’s plain cigarette packaging legislation intended to reduce smoking.Footnote 39 Although the Australia–US FTA lacks an ISDS provision, corporate restructuring enabled the company’s Hong Kong subsidiary to resort to the Australia–Hong Kong BIT. The Tribunal held in favor of Australia by finding that “this arbitration constitutes an abuse of rights,” as the dispute was foreseeable to Phillip Morris at the time of the restructuring.Footnote 40
Investor–state dispute settlement became widely criticized for substantially increasing legal costs and creating a “regulatory chill,” making public policy measures vulnerable to legal challenges by foreign enterprises.Footnote 41 Philip Morris led to the tobacco carve-out clause of the TPP, and its ISDS application was further restricted under the CPTPP.Footnote 42 These disputes and subsequent legislative changes highlight ISDS reforms as an IAL development in the Third Regionalism.
III From the ASEAN Way to ASEAN Law
The ASEAN way is now an indispensable formula that has resulted in the key product, IAL, within the regional trade and investment architecture. The Indonesian concepts of musyawarah and mufakat (consultations and consensus) constructed the normative basis for the ASEAN way, which denotes the collective principles of sovereignty, noninterference, and consensus in decision-making.Footnote 43 In reality, the ASEAN way has functioned as the code of conduct in inter-state relations and the decision-making process for reaching consensus by consultations.Footnote 44 It contributed to the birth of ASEAN and transformed IAL in new Asian regionalism. Beyond what political scientists envisioned, the ASEAN way is no longer a purely political concept. The unique procedural approach of pragmatic incrementalism exemplifies the type and method of IAL. The evolving ASEAN way that led to modern ASEAN law should be understood as constructing hard-law obligations with structured flexibility. Furthermore, as the key actor and intermediary, the ASEAN-centered framework constructs a plurilateral platform for Asian states. The legalization of this framework applies not only to ASEAN agreements but also to institutional reforms involving the ASEAN Community and the ASEAN Secretariat.
A constitutional moment for ASEAN was the signing of the 2007 ASEAN Charter, which conferred legal personality on the association “as an inter-governmental” organization.Footnote 45 The establishment of the ASEAN Community in 2015 represents the next milestone. As one of the three pillars of the new Community, the AEC aspires to “establish a more unified market” by facilitating “the seamless movement of goods, services, investment, capital, and skilled labour.”Footnote 46 The AEC Blueprint 2025 also prioritizes the “Global ASEAN” agenda to buttress ASEAN Plus One FTAs and expedite RCEP negotiations.Footnote 47
Consolidating and rectifying past investment pacts, the ASEAN Comprehensive Investment Agreement (ACIA) is an indispensable instrument for the bloc’s investment liberalization and protection.Footnote 48 Pursuant to the AEC Blueprint 2025, the ACIA aims to progressively liberalize existing restrictions and fortify investment protection and transparency of investment rules.Footnote 49 EU law has developed primarily because of its direct effect on domestic law. The ACIA demonstrates the evolution of IAL through the harmonization of domestic investment laws and the provision of best practices for investment reforms.
The ACIA also illustrates the norm diffusion of IAL. Asian developing countries have started to move away from perceiving Western models as the sole blueprint for modernity. Instead, they are turning to regional structures for guidance. Notwithstanding the lack of direct effect, the ACIA’s normative value can be illustrated by the latest investment laws in Laos and Myanmar.Footnote 50 Laos’ 2009 Law on Investment Promotion and its 2016 amendments, which apply to both domestic and foreign investments, brought domestic rules much closer to the ACIA requirements.Footnote 51 To modernize the domestic investment regime, Myanmar enacted the 2016 Investment Law and the 2017 Investment Rules.Footnote 52 New provisions incorporated the ACIA’s key features such as the single reservation list, as well as national treatment and most-favored-nation (MFN) treatment clauses. Despite the coup in 2021, the military government has maintained the investment scheme.Footnote 53
IAL does not exist as an isolated system. US law has played a key role in shaping investment rules in the region. Nevertheless, akin to developments of the CPTPP, the RCEP, and modern Asian trade agreements, the ACIA aims to strike a better balance between rights of host states and the mandates of the Washington Consensus. Thus, the evolution of the investment frameworks of the ACIA has departed from the conventional US approach and constructed an incremental model for IAL. Initially influenced by the US Model BIT, the ACIA adopted a broad, non-exhaustive, and asset-based definition of investments that covers “every kind of asset.”Footnote 54 The ACIA also excludes assets that lack “the characteristics of an investment” to prevent proliferating claims.Footnote 55 As for investment liberalization, the ACIA governs five main sectors (agriculture, fishery, forestry, manufacturing, and mining and quarrying) and service sectors incidental to these sectors.Footnote 56
The original ACIA encompassed a single, negative-list annex, which covers ASEAN countries’ existing and future nonconforming measures in the liberalized sectors.Footnote 57 The subsequent Fourth Protocol broadened the liberalization scope by changing a single annex to two-annex negative lists.Footnote 58 Transparency has been enhanced because ASEAN states are required to indicate their current nonconforming measures in the first annex and schedule reservations for future measures in the second annex.Footnote 59
The ACIA closely links to the rules and commitments of the ASEAN Trade in Services Agreement (ATISA).Footnote 60 Mode 3 (commercial presence) commitments liberalize foreign equity restrictions in services sectors and are therefore critical to foreign investors. The ATISA consolidates successive packages of services commitments under the Framework Agreement on Services (AFAS). Schedules of services commitments finalized under various rounds of negotiations cumulatively “form an integral part of” the AFAS.Footnote 61 This evolutionary approach similarly exhibits the legal approach of pragmatic incrementalism.
The US approach also influenced ISDS provisions of the ACIA that goes beyond conventional BITs by incorporating more detailed arbitration procedures than those of the ICSID Convention.Footnote 62 The ACIA is of the essence to ASEAN-related investor–state disputes, as Laos, Myanmar, and Vietnam have yet to join the ICSID Convention. Moreover, the controversial interpretations of fair and equitable treatment (FET) in ISDS claims make it a core topic of investment reforms. Fair and equitable treatment “has turned into an all-encompassing provision,” which entitles investors to utilize any investment pacts to challenge host states’ “unfair” measures.Footnote 63 In response, the ACIA prevents the host country’s denial of justice and accords the investors due process “in legal and administrative proceedings.”Footnote 64 To ensure regulatory sovereignty and prevent forum shopping, the MFN clause of the ACIA excludes ISDS proceedings.Footnote 65 The incorporation of comparable provisions into ASEAN Plus One FTAs also shows the development of ASEAN law that enriches IAL.Footnote 66
IV Harmonizing Asian Laws under the RCEP
Being the world’s largest trade pact by economic scale, the RCEP will expedite the harmonization of Asia-Pacific legal systems. Domestic legal reforms according to the RCEP and the transplantation of core features of the ACIA and ASEAN Plus One FTAs into the RCEP will further crystalize IAL. The RCEP can be seen as the culmination of the ASEAN-centered framework and constitutes the critical actor and plurilateral platform by which Asian states align their interests. The normative development of the RCEP also illustrates the type and method of interactions among its members. These interactions are evidenced by the cooperation, harmonization, and norm diffusion under the RCEP. Based on the evolving ASEAN way premised on pragmatic incrementalism, the RCEP is pivotal in strengthening IAL.
At the inception of the Third Regionalism, Beijing and Tokyo proposed their own preferred models for Asian integration, but ASEAN “ended the debate by proposing” the RCEP as “an ASEAN-led process.”Footnote 67 The endorsement of ASEAN centrality by sixteen negotiating parties manifests Asia’s shift from the Washington Consensus to the ASEAN Consensus.Footnote 68 Despite India’s withdrawal from RCEP talks and the arguably lower-level liberalization of the RCEP as compared to that of the CPTPP, the normative impact of the RCEP as a pathway to the APEC-proposed Free Trade Area of the Asia Pacific should not be underestimated.Footnote 69
Given the US–China rivalry, Beijing’s application to join the CPTPP and its RCEP membership can be seen as countermeasures against US-led sanctions. In particular, the RCEP reflects China’s first attempt to accede to a mega-FTA that will advance the Belt and Road Initiative. The RCEP has harmonized investment laws of China with those of more developed Asian partners. China’s RCEP commitments are vital to its post-WTO economic reform. Under the agreement, thirty-seven areas of China’s investment liberalization exceed its WTO commitments.Footnote 70 Furthermore, the RCEP marks China’s first application of the ratchet mechanism that disallows parties to change back to more restrictive forms.Footnote 71 Other than MFN, Beijing agreed to extend national treatment to the pre-establishment stage of investment, which was primarily implemented in free trade zones or ports and was rarely included in recent bilateral investment pacts.Footnote 72
RCEP’s adoption of ACIA rules has similarly harmonized regional investment rules, thus reinforcing the ASEAN Consensus in IAL. Both the RCEP and the ACIA are based on the common core pillars of investment protection, liberalization, promotion, and facilitation. With more pro-development provisions, the RCEP follows the ACIA-like asset-based definition of investment but incorporates country-specific restrictions such as an approval in writing requirement.Footnote 73 Although an investor can be a juridical person, its branch is excluded from having “any right to make any claim against any” RCEP country.Footnote 74 To implement investment reforms, the RCEP requires FET and full protection and security to be interpreted pursuant to the “minimum standard of treatment of aliens” under customary international law.Footnote 75 Comparable to the ACIA, the RCEP and its annex stipulate detailed conditions and compensation for direct and indirect expropriation.Footnote 76
RCEP parties scheduled their services and investment commitments in Annexes II and III. Annex III incorporates parties’ negative-list market access commitments.Footnote 77 Akin to the ACIA Fourth Protocol, List A includes RCEP members’ nonconforming measures that exclude or restrict foreign investment, whereas List B details their reservations for potential discriminatory measures.Footnote 78 Notably, the ratchet clause applies to both services and investment so that RCEP members “commit to automatically extend the benefits of any future” pacts to all other parties.Footnote 79 This mechanism ensures the “living agreement” nature of the RCEP and the growth of IAL.
Services commitments are critical to Mode 3-related foreign equity restrictions on foreign investment. Departing from the models of the WTO and ASEAN agreements, the flexible hybrid model that the RCEP adopted demonstrates the procedural dimension of pragmatic incrementalism. This approach may be seen as different from the Western model, but it could achieve similarly substantive results. Eight members used positive list scheduling under Annex II and seven states followed the negative list approach by including their reservations and nonconforming measures in Annex III.Footnote 80 The eight parties are obliged to transition to negative-list scheduling six years after the RCEP takes effect, but a fifteen-year transition period is granted to Cambodia, Laos, and Myanmar.Footnote 81
Investor–state dispute settlement is one of the most important topics in investment reforms. At the multilateral level, Asian countries’ reform proposals for the UNCITRAL Working Group III will shape IAL. China, Indonesia, Korea, and Thailand preferred the prevention of disputes.Footnote 82 For example, Indonesia proposed to condition investors’ claims on the exhaustion of local remedies, the government’s separate written consent, and mandatory mediation.Footnote 83 This reflects Jakarta’s cautious stance following proliferating ISDS claims such as Churchill Mining and Planet Mining and certainly influenced the RCEP design.
The ACIA, the CPTPP, and ASEAN Plus One FTAs follow US-style ISDS. However, replacing ISDS with recourse to state courts and state-to-state proceedings became an emerging trend.Footnote 84 Several recent investment pacts involving Asian parties include no ISDS mechanism. Notable cases include the ASEAN–Hong Kong Investment Agreement, the UK–Japan FTA, and the EU–China Comprehensive Investment Agreement. These agreements stipulate that ISDS rules will be subject to subsequent negotiations.Footnote 85 The RCEP similarly mandates that parties commence negotiations for ISDS within two years after the RCEP enters into force and that they complete the negotiations within three years.Footnote 86 Consequently, the RCEP’s approach to ISDS illustrates pragmatic incrementalism.
The changing stance on ISDS illustrates Asia’s new consensus on investment rulemaking. In fact, based on the 2012 Guiding Principles and Objectives, RCEP parties agreed to incorporate ISDS rules in 2015.Footnote 87 Given some members’ objections, the CPTPP’s restrictions on the ISDS application of the TPP, and side letters of selected CPTPP parties that exclude ISDS entirely, RCEP members decided to leave the thorny issue for future negotiations.Footnote 88 The specific exclusion of pre-establishment rights from investment disputes also manifests RCEP parties’ intention to resolve these disputes through state-to-state procedures.Footnote 89 Moreover, based on the model of ASEAN Plus One FTAs, the RCEP affirms “existing rights and obligations” arising from other agreements.Footnote 90 Under this coexistence approach, RCEP parties are entitled to investor–state and state–state arbitration under investment rules of ASEAN Plus One FTAs.Footnote 91 These developments distinctly differentiate Asia’s new approach from the EU and US approaches to ISDS.
Furthermore, parties’ commitment to “the expeditious establishment of the RCEP Secretariat” will not only ensure the RCEP as a living agreement, but also reinforce IAL development.Footnote 92 Cambodia strongly urged parties to set up the RCEP Secretariat in Phnom Penh, whereas Indonesia may prefer to have the Secretariat in Jakarta where the ASEAN Secretariat sits.Footnote 93 Before the decision is made, a separate RCEP Support Unit was established within the ASEAN Secretariat as the temporary RCEP Secretariat to monitor the implementation of the agreement.Footnote 94 Proliferating new trade and investment issues involving technology such as 3D models and the application of artificial intelligence (AI) including ChatGPT and deepfake are outside the scope of the WTO and conventional FTAs. Therefore, the RCEP Secretariat will be expected to be a key institutional actor in propelling IAL with global implications.
Importantly, new-generation components of trade agreements also relate to investment. Rules on digital trade and sustainability will expedite the Fourth Industrial Revolution and Sustainable Development Goals. Although the RCEP focuses on harmonizing laws rather than creating innovative rules on digital and environmental issues, selected agreements led by RCEP members will impact this mega-FTA and IAL. Markedly, the Digital Economy Partnership Agreement (DEPA) and Singapore’s bilateral digital economy agreements with three countries extend areas of cooperation from data to AI.Footnote 95 In 2022, DEPA parties established the accession working group for China and held talks on Korea’s potential accession.Footnote 96
Owing to domestic political pressures, the US and the EU are preoccupied with the sanction model for FTAs’ sustainable development provisions. Nevertheless, Asia has shifted the focus to the liberalization model. As the first of its kind, the Singapore–Australia Green Economy Agreement has developed the lists of environmental goods and services that could serve as a basis for trade liberalization.Footnote 97 New Zealand is also currently negotiating the Agreement on Climate Change, Trade and Sustainability, which will reduce trade barriers for environmental goods and services.Footnote 98 I call this trend “green regionalism”; it will have a profound impact on domestic legislation and regional pacts.
V Conclusion
This chapter examines how IAL has operated and developed procedurally through multilayered investment agreements. It argues that legalizing the ASEAN way has invigorated Asia’s normative development, departing from the Western models premised on the Washington Consensus. To address the key questions within the analytical frameworks of this volume the chapter finds that legal cooperation, harmonization, and norm diffusion constitute the major types and methods of interactions between Asian jurisdictions under plurilateral platforms. The ASEAN-centered regimes, including ASEAN agreements and the prospective RCEP Secretariat, constitute indispensable actors and intermediaries for enabling Asian states to align their interests.
The changing ASEAN way has become a formula that has led to IAL as the key product. The notable procedural dimension of pragmatic incrementalism has shaped both ASEAN law and IAL. As investment rulemaking demonstrates, IAL can be understood as cross-fertilization between regional agreements with different scopes and between these agreements and domestic reforms. ASEAN Economic Community and RCEP provisions reinforce the value of IAL in new Asian regionalism. Consequently, the findings of this chapter contribute to the understanding of Asian legal models that reflect the geopolitical reality of the multipolar world.
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