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Part I Chapter 10 ASEAN

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Chapter 10

ASEAN

I. General

TRIPS

Asian countries increasingly have been establishing adequate laws, regulations,systems, and institutions to protect intellectual property rights. Since the establishment ofthe WTO, Asian countries have been amending their national intellectual property legislationto conform to the TRIPS Agreement. We appreciate the efforts of some Asian countries toconform to the TRIPS Agreement in advance of the end of the transitional period in 2000. Asthe reviews of the implementation toward developing countries are finished under the TRIPSCouncil, we will need to watch both the legal frameworks and the administrations to ensureproper fulfilment of agreement obligations. When inconsistent circumstances exist,including failure to adhere to the Agreement, it is necessary for Japan to consider the use ofWTO dispute settlement procedures.

1) Counterfeit and Imitation Goods in Asian Countries

Availability of EnforcementThe largest intellectual property rights problem in Asian countries, and one that besets

virtually every country, is the huge number of cases of infringement in the form of rampantproduction and distribution of counterfeit trademark goods, design imitation goods and


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pirated copyright goods (See Figure). This problem is exacerbated by the inability of manyAsian governments to effectively enforce rights and eliminate infringements.

The introduction of substantive legal provisions and the establishment of a regulatorysystem by itself will not guarantee the sufficient protection of intellectual property rights.For rights to be sufficiently protected, the granting and registration of rights must be handledefficiently by the relevant authorities and agencies. Moreover, effective and expeditiousremedies against infringement of intellectual property rights must be available to prevent anddeter infringements. Adequate remedies include court enforced injunctions for infringement,compensation for damages, orders to destroy infringing products, provisional measures toseize infringing products and secure evidence, border measures by customs authorities, andthe availability of criminal enforcement and sanctions.

In the TRIPS Agreement, Articles 41 through 61 provide for these enforcementprocedures. Specifically, Article 41 requires Members to ensure that enforcementprocedures are available to permit effective and expeditious action against infringement ofintellectual property rights. A lack of effective and expeditious enforcement measures mayconstitute a violation of obligations under the Agreement. Japan must watch for legislationof Members, especially developing country Members, since their moratorium expired, fromthe year 2000 to ensure effective and expeditious enforcement procedures. Moreover, wheninconsistent legal frameworks and administrations are identified, Japan should considerresolution through the WTO dispute settlement mechanism.

Some Asian countries recognize the need to strengthen their enforcement mechanismagainst pirated goods, and their authorities are actively cracking down on these products.Japan praises these efforts and looks forward to further strengthening in the future.

Figure ASEAN-1

Number of IPR Infringement of Japanese Products in Asian Countries

Number ofCompanies damagedby the manufactureof counterfeits

Number ofCompanies damagedby the distribution ofcounterfeits

2000 2001 2000 2001

ASIAN AREA

China

Hong Kong

Chinese Taipei

705

349

56

186

713

350

187

679

278

125

212

696

287

189


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Korea

Thailand

Indonesia

Singapore

Malaysia

192

37

30

25

17

176

47

30

18

34

186

71

71

68

79

183

83

63

63

75

Other 40 44 79 137

World (total) 831 858 1,035 1,080

* Note: Asian country statistics do not match Asian area statistics because multiple responseswere permitted.

* * Source: Survey Report on Damage Caused by Counterfeit Goods/Services, by the JapanInstitute of Invention and Innovation

Actions Concerning Counterfeit Goods and ImitationsWith respect to the issues of counterfeit goods and imitation in Asian countries, we

urge that enforcement procedures be brought into conformity with international standards.Adjustments to the substantive legal and other systems of countries will not be enough.

First, it is necessary to secure the necessary personnel to operate an effectiveintellectual property protection regime, and efforts must be made to train personnel in thefield of intellectual property inside and outside of the government so as to increase awarenessof the relevant problems. For the granting, registration, and law enforcement agencies tooperate efficiently and appropriately, it is necessary to develop computerized systems. Toassist in achieving these goals, Japan and other developed countries should help developingcountries make the necessary institutional improvements and provide technical assistancethrough expanded training programmes, to address situations when counterfeits are importedand then distributed in coon Young. In order to improve the efficiency of border measures,care should be taken to provide better support for the training of customs officials.

Although the basic principle is for the rights holder himself to implement enforcementthrough the local legal framework, there is, at the same time, a limit to the effect an individualrights holder can have. Industry, rights holders, and government must therefore work moreclosely to gain stronger control by administrative authorities, and through educational andpublic relations programs to promote better understanding of the importance of intellectualproperty among the people of the country concerned as well as greater awareness of thesignificance of protecting it.

To this end, Japan has greatly enhanced technical assistance to Asian countries, andwill continue to promote technical cooperation in the future. In addition, the manufacture and


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distribution of counterfeit products is spread across several countries, so study should begiven to measures that will promote the exchange of information on intellectual propertyrights infringement among relevant countries.

2) Licensing Restrictions

Asian countries often regulate international licensing contracts between foreign anddomestic companies under special legislation governing technology transfer or underintellectual property rights laws. These licensing regulations often restrict or ban specificcontractual clauses with the effect of limiting the ability of foreign licensers to use theirintellectual property rights or of placing foreign licensers in extremely disadvantageouscontractual positions. The TRIPS Agreement allows appropriate measures to be taken toprevent detrimental influence on and practices concerning international transfers oftechnology (Article 8), and to prevent or restrict anti-competitive practices in licensingcontracts (Article 40). The TRIPS Agreement also contains a safeguard provision thatattempts to prevent abuse of licensing restrictions by requiring that they not violate otherprovisions within the TRIPS Agreement. When considered in this light, many of thelicensing restrictions imposed by Asian countries would seem to be contrary to the TRIPSAgreement.

Examples of restrictions that are contrary to the TRIPS Agreement are as follows:limitations on the terms of licensing contracts or the periods for which royalties can becollected are restrictions that are contrary to the TRIPS Agreement. The TRIPS Agreementgives the owners of patents the right to assign licensing contracts of their patent rights(Article 28.2), and obligates countries to protect patent rights for 20 years (Article 33).Accordingly, the government regulations that restrict rights under international licensingcontracts to anything shorter than its valid right term (and no exception for any extension)seem to be contrary to the TRIPS Agreement.

Other restrictions that may not be contrary to the TRIPS Agreement include:

(1) Obligations on the licensor of licensed technology not to infringe third parties rights orto guarantee that certain levels of technology will be met.

(2) Prohibitions regarding contracts clauses restricting exports. Both of these imposeextremely disadvantageous conditions on the licensor of technology and maydiscourage licensing contracts.

The above licensing restriction issues may be inconsistent with the Agreement.Therefore, licensing restrictions contrary to the TRIPS Agreement should be amended and


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brought into conformity with the Agreement. Other limitations that discourage or impedelicensing and thereby, cause barriers to international technology transfers should also beeliminated, and Japan should continuously monitor the regulation of each country.

II. Menber Countries

1. THAILAND

QUANTITATIVE RESTRICTIONS

Import Restrictions under The Export and Import Act

Thailand imposes import restrictions under Article 5 and other provisions of the Exportand Import Act of 1979. Restrictions are provided not only to protect national security,public order, and morality, but also for the economic purpose of protecting domesticindustries. The number of the restricted items has been slightly fluctuating from year to year.As of January 2003, the Ministry of Commerce required licenses for importation of 41 items(19 agricultural products, 22 industrial goods). They restricted some of these items in order toafford protection to their domestic industries.

These measures are likely to constitute violations of Article XI since they have notbeen justified under any exception, such as the balance of payment provisions. Japan shouldrequest that these measures be brought into conformity with the WTO Agreement.


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TARIFF

High Tariffs

After the implementation of the Uruguay Round commitment, the levels of tariffs insectors such as transportation equipment (average 47.6 percent) and electronics (average31.6 percent) are still high. Copper products (maximum 30 percent) and polyethylene(maximum 30 percent) also have high tariffs. Thailand has agreed to bind a relatively lowpercentage of its tariff goods. For example, only 15.7 percent of transportation equipmentitems are bound while only about 70 percent of industrial goods as a whole are bound.

ANTI-DUMPING

In 2002, Thailand had initiated anti-dumping investigations on Phthalic Anhydride,Cold-Rolled Steel and Hot-Rolled Steel from Japan. The Thai investigating authority madeaffirmative preliminary determinations on Cold-Rolled Steel in August 2002 and Hot-RolledSteel in November 2002. Provisional anti-dumping duties have been imposed on theseproducts.

Since 29 July 2002, the Thai Government has collected guarantees on imports ofHot-Rolled Steel, which was still subject to the anti-dumping investigation. The guaranteesystem can be interpreted as a provisional measure under the Anti-Dumping Agreement. TheAgreement provides that provisional measures may be applied only if a preliminaryaffirmative determination has been made and may not be applied sooner than 60 days fromdate of the initiation of the investigation. The application of the provisional measure withoutmaking the preliminary determination and at a stage less than one month after the initiationof the investigation, on 8 July 2002, therefore was inconsistent with the Anti-DumpingAgreement. This measure, however, has been replaced by the provisional anti-dumping dutythrough the preliminary determination made on 8 November 2002.


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TRADE IN SERVICES

1) Cross-Sectorial Regulations

The Alien Business Act determines the types of businesses in which foreign companiescan enter. This restriction applies to many types of services businesses, includingengineering and most retailing services, making it extremely difficult for foreign companiesto do business in these sectors.

However, in March 2000, amendments to the law were made, reducing the number ofsectors in which foreign investments are limited. The amended law reduces the number ofindustries for which there are restrictions on foreign participation to 43, from 63 in theunamended law. Trade mediation, wholesaling, retailing, hotel management andconstruction would be deregulated above a set threshold size, and the remaining industries,except for nine sectors, including mass communications and real estate, would be open toforeign participation and subject to licensing from the relevant authorities.

The initial government draft would have reduced the number of restricted sectors to34, but decision in the legislature brought a slight dampening of the pace of liberalization.Furthermore, Thailand seems to have changed the definition of Alien Company by addingthe condition of control. During the election, the Thai government publicly committed toreviewing 11 economic reconstruction laws (passed at the supporting of the IMF), includingthe former Corporate Regulation Law. Studies are now in progress in a committee chaired bya top policy adviser to the prime minister. Japan should monitor those movement ofstrengthening regulation and look forward to further reductions in restricted sectors in orderto facilitate the business activities of foreign companies.

Thailand has registered a most-favored-nation exemption for the Treaty of Amity andEconomic Relations between the Kingdom of Thailand and the United States of America(registration deadline of 2004). Japan seeks the deletion of this exemption and early grantingof most favored nation status.

2) Financial Services

In Thailand the foreign equity investment ratio and the ratio of foreign directors ininsurance companies is restricted to 25 percent or less. Currently an amended bill has beensubmitted to raise this to 49 percent. The bill apparently has not been adopted and Japanhopes it is passed quickly. (This restriction, which had a time limit of ten years, wasabolished for financial institutions other than insurance companies from 1997.)


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3) Telecommunication Services

Thailand has obtained concessions from TOT (Telephone Organization of ThailandCorporation), its domestic telecommunications carrier, that it will allow 2.6 million lines tobe built by Telecommunications Asia within the Greater Bangkok area and 1.5 million byTT&T outside Greater Bangkok. Both projects used BTO (Build Transfer and Operation)schemes.

In preparation for full liberalization of the telecommunications sector in 2006, a“National Telecommunications Council” independent of the government was to be set up inThailand at the beginning of 2001. There was, however, political conflict in the process ofselecting committee members and as of the beginning of 2002 the committee has still notbeen set up nor has a schedule for its establishment been decided. Furthermore, theTelecommunications Act has come into effect. This Act lowered the ceiling on the ratio offoreign equity investment in telecommunications companies from 49 percent to 25 percent.Thailand is now deliberating a bill that would return the ceiling to 49 percent, but there arestill concerns about whether it will fulfill its WTO commitment to liberalize thetelecommunications sector by 2006. We need to monitor future moves to amend the law.

4) Distribution

The amendments to the Alien Business Act restrict foreign ownership of retailingservices with minimum capital of less than 300 million bahts or of branches with less than 20million bahts and wholesale services with a minimum capital of less than 100 million bahts.In addition, although the retail companies and wholesale companies that exceed thesethresholds are allowed to enter the market, the Thai government appears to be indirectlyrestricting foreign using other regulatory measures, such as the Urban Planning Law, theTrade Competition Law, the Consumer Protection Law and the Large-Scale ConstructionLaw. Japan should monitor these moves.

5) Advertising Services

Thailand has limited foreign investment to 49 percent in advertising services in itsGATS commitments, but 100 percent investment stakes are approved for investments bycompanies from the United States, which is contrary to Most-Favoured-Nation treatment.Although Thailand has registered an exception for measures under the Treaty of Amity andEconomic Relations between the Kingdom of Thailand and the United States of America,and thus this is probably not a violation of the GATS, it is still hoped that Most-Favoured-Nation treatment will be accorded as soon as possible.


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6) Computer-Related Services

The Alien Business Act bars foreign ownership of more than 50 percent of theshares of software companies. The country permits 100 percent foreign ownership ininvestment-promotion sectors beginning in 1997, but has not permitted the transition to 100percent foreign ownership for joint-ventures established prior to that time, and this is causingproblems.

2. MALAYSIA

NATIONAL TREATMENT

Domestic Taxes on Automobiles

In Malaysia, there is discriminatory treatment of automobiles between the national carmanufactured by the domestic national manufacturer and non-national cars manufactured byother manufacturers in regard to the levying of the commodity tax (a domestic tax levied oncertain products such as automobiles) and the import tax on automobile parts. It has beenreported that a tax rate of 25-65 percent is normally levied depending on the price, while thetax rate applied to the national car is discounted by 50 percent (see the FY2001 WTOSecretariat Report in Trade Policy Review Mechanism). In addition, it has been reported thatthe import tax on imported parts (knockdown, etc.) for the national car is either discounted ornot applied. These measures violate the national treatment provision of the GATT Article IIIand need to be corrected.


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1) Import Restrictions Under the Customs Act

Under the terms of tariff orders and other provisions of Article 31 of the Customs Actof 1967, Malaysia restricts imports of four classes of products: 1) products subject to a totalimport ban (14 items, including multicolour copy machines and weapons); 2) products thatmay be imported under certain conditions (40 items, including magnetic video cassette tapesand complete vehicles), supposedly for the protection of domestic industry; 3) productssubject to temporary import restrictions in order to protect a domestic industry (15 items,including cement and plastic raw materials); and 4) products subject to conditions as to themanner of importation and procedures requiring quality and safety certifications fromcompetent authorities in Malaysia or the exporting country (51 items, including fertilizersand home electronic appliances). Such import restrictions may be in violation of Article XIsince they cannot be justified under any GATT exception, such as restrictions necessary tosafeguard the balance of payments.

2) Export Restrictions on Logs

The Malaysian government, with a view to increasing domestic timber processing in itsterritory, has banned exports of all logs except for small size wood in 1985. The Malay Stateof Sabah set an annual export quota of two million cubic meters in November 1996. Sabahalso banned the export of Selangan Batu log and sawn timber from August 2000 to ensureadequate supply of Selangan Batu products in the local manufactures. However, the exportban of some logs and sawn timber certified by a qualified log grader permitted by the SabahForestry Department was exempted in December 2000. The State of Sarawak also has beenimplementing export quotas so as to set aside a certain share of logs produced in its territoryfor domestic processing. These measures, such as the export ban and export quotas, arehighly likely to violate Article XI. Japan should continue to request that these measures bebrought into conformity with the WTO Agreement.


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TARIFF

1) High Tariff Goods, Bound Rates

The Uruguay Round resulted in an average bound rate (trade-weighted average) of9.1 percent for imports of industrial goods into Malaysia. This is a low tariff rate for adeveloping country, and one that Japan welcomes. There are, however, some areas that aresubject to high tariffs. Textile products (average 21.5 percent) and transportation equipment(average 22.6 percent) are two examples. Other high-tariff items include electricalequipment and glass, which have maximum tariffs of 30 percent. We would also note thatMalaysia’s bound rate covers only 79 percent of tariff items.

2) Increased Tariff on Steel Plates

On March 15, 2002, Malaysia increased tariffs on 199 steel products, including hotand cold rolled sheets, from levels traditionally ranging from 0-25 percent to up to 50 percent.Although this does not necessarily involve a violation of WTO rules as the hiked productswere non-concession items, the tariffs were increased so sharply and rapidly that Members,including Japan, were concerned that the increases could adversely influence trade in theseproducts.

In general, drastic tariff increased significantly impair the predictability forbusinesses and, thus, impede their activities. In this regard, WTO Members should,wherever possible, provide concessions for these non-concession items.

TRADE IN SERVICES


In its administration of guidelines based on Bumiputra-ization policies, the ForeignInvestment Committee issues permits for foreign capital participation in retailing, trading,printing, transportation, housing development and construction. In principle, foreign capital


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participation in these sectors is conditional upon 70 percent domestic capital (of which 30percent must be Bumiputra capital). For exceptions, the Foreign Investment Committeemust determine that “more than 30 percent foreign capital is necessary”, but even then mustseek a step-by-step reduction in the foreign stake. In the finance and insurance industries,firms conducting sales activities on domestic markets are in practice not permitted to haveforeign capital. These moves are aimed at protecting and developing domestic companies.Meanwhile, the Asian currency crisis of 1997 weakened existing companies, resulting inadministration that departs from the guidelines for parts of the transportation andtelecommunications sectors, and independent reviews by the Malaysian IndustrialDevelopment Authority (MIDA) for foreign service industries directly linked tomanufacturing. In its 8th Malaysia Plan (2001-2005) the Malaysian government alsoadvocates developing and strengthening distribution services in order to raise the quality oflife of consumers, and is implementing policies to encourage Bumiputra companies to enterthe distribution services industry, where there are few such companies, by providing lowinterest finance and management know-how for those managing retail businesses.


In February and March 2001 the Malaysian government announced a Master Plan,which is a long-term basic plan for capital and financial markets. The Capital Market MasterPlan includes measures to increase investment in domestic securities markets such as: i)deregulation of the equity ratio of foreign companies in securities companies, ii) deregulationof the rules for the asset management of employee pension funds (EPF), iii) thoroughcorporate governance and protection of small shareholders, and iv) nurturing of Islamicfinancial markets. Currently the ratio of foreign equity in securities companies andinvestment trust companies is 49 percent and 30 percent respectively although deregulationis scheduled for 2003. The Financial Market Master Plan calls for approval for the openingof branches by foreign financial institutions already present in Malaysia in 2004 and theresumption of the granting of full banking licenses to foreign banks, which is currentlyshelved, in 2007.


In February 1998, Malaysia raised the foreign capital ceiling on domestictelecommunications from 30 percent to 49 percent, and then in April announced that, for thefirst five years, the ceiling would be raised to 61 percent and then reduced to 41 percent. InApril 1999, the Communications Multimedia Committee (CMC) announced new foreigninvestment guidelines to respond to the globalization of Internet-based businesses. The


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guidelines permit 100 percent foreign capital for Internet Service Providers (ISPs) withlimited areas of service.

4) Distribution Services

In April 2002, the government of Malaysia published and immediately implementednew store opening guidelines for "hyper markets" (defined by the Ministry of DomesticTrade and Consumer Affairs as stores with 8,000 square meters or more of sales space andcapital of 5000 ringgits or more). The purpose of the guidelines is to protect smallneighborhood retailers. They cover both local and foreign capital and apply not only to newlyopened stores but to all existing stores with establishment permits in the Malaysian market.For new openings, the guidelines set minimum capital requirements (50 million ringgits ormore), impose siting restrictions (no new openings permitted in urban areas etc.), limit salesfloor space, and require stores to be established by their own. For existing stores, they requirethat it least 30 percent of all products be domestic, and restrict handling of the products ofbumiputra companies.

3. INDONESIA


1) Quantitative Import Restrictions

Indonesia has maintained an import ban and quantitative restrictions on numerousitems for the protection of domestic industries, including an import ban on assembledautomobiles and motorcycles, and import quotas on commercial vehicles. Through the 1997Decree No. 230 and the year 2000 Decree No. 254, the number of such items had fallen to186.

In 2002, however, an increase in smuggling and illegal imports resulted in a flood ofcheap goods on the domestic market that injured domestic industries. In response, thegovernment adopted a tougher stance towards importer regulation. In March, Indonesiaintroduced a Special Importer Identification Number (NPIK) that limits imports in eight


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categories (including rice, wheat, sugar, textiles, footwear, electrical appliances, toys) toregistered importers. Then, restrictions were further strengthened until November andimports of raw sugar, refined sugar, textiles, steel and other items were restricted tomanufacturers.

These import restrictions are not justified by WTO rules on exceptions and likelycontravene GATT Article XI. Japan will need to closely monitor trends in this area.

2) Export Restrictions on Logs and Lumber Products

In January 1998, the government of Indonesia, under an IMF agreement, announcedthat it would be switching from a specific duty on the export of logs and lumber products(calculated according to volume) to an ad valorem (calculated according to price) system. Itreduced the export duty to 30 percent in April 1998, to 20 percent in the end of December1998, and to 15 percent in the end of December 1999. It also set export regulations, includingexport quotas for logs and lumber products.

Under these regulations, the ad valorem values are calculated based on export standardprices, which themselves are determined by the government according to methods thatremain opaque. The setting of export quotas for logs and lumber products is also likely to bein violation of Article XI, which prohibits restrictions on product exports. Japan shouldrequest that these measures be brought into conformity with the WTO Agreement.

Furthermore, on 8 October 2001 the Indonesian government temporarily suspendedlog exports as a measure to counter illegal logging. If this measure was implemented tosecure raw materials for domestic industry, it would likely be in breach of GATT Article 11.Japan needs to monitor this situation.

TARIFF

High Tariff

The Uruguay Round improved Indonesia’s bound rate to 92 percent of its tariff items,a development that Japan welcomes. However, the bound tariff rates for the vast majority ofitems remain extraordinarily high, at levels of 30-40 percent. Effective tariff rates are alsohigh, at an average of 27.8 percent for textiles and textile products, 30.6 percent for


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transportation equipment, and 26.1 percent for electric equipment. The new automobilepolicy enacted in June 1993 and subsequent revisions remove the ban on finished car importsand reduce tariffs. Tariffs on sedans, station wagons and other finished passenger cars havebeen gradually lowered and stood at a maximum of 80 percent in 2002 (compared to amaximum of 200 percent in 1999).

In its “Individual Action Plan” for APEC, Indonesia made an explicit commitment tobegin in 1995 to reduce effective tariffs that were currently less than 20 percent to less than 5percent by 2000, and those currently in excess of 20 percent to no more than 20 percent by1998 and to less than 10 percent by 2003.

ANTI-DUMPING

Indonesia had initiated four anti-dumping investigations on Tin Plate, Steel Pipes,Welded Steel Pipe and Phthalic Anhydride from Japan. The Indonesian investigatingauthority made the final affirmative determination on Tin Plate in April 1999 and the finalnegative determination on Steel Pipes in February 2000.

In regard to anti-dumping investigations by the Indonesian investigating authority, theapplications covered items that were not manufactured domestically in Indonesia or couldonly be supplied by the applicants at great difficulty. There are doubts, therefore, that therequests for an investigation would not meet WTO requirements and Indonesian industrywould not have been injured by the imports.

Moreover, the investigation on Welded Steel Pipe seems to be inconsistent with theAnti-Dumping Agreement since there is incorrect information in the application and theinvestigating authority failed to analyze injury based on accurate statistical data during theinvestigation. Japan needs to monitor the progress of this investigation.

TRADE IN SERVICES



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Presidential ordinance No. 96, dated July 20, 2000, and No. 118, dated August 16,amended Indonesia’s negative list of restricted sectors to remove large-scale retail (malls,supermarkets, department stores, shopping centres), large-scale distribution (logistics,wholesaling, exports), market study services, and non-port storage services. In addition,entry into medical services, a sector previously barred to foreign capital, is now open,although restricted to a foreign stake of less than 95 percent. Air transportation andtelecommunications (including multimedia industries) are also open.

While these series of deregulation measures are welcomed, the bus and taxi industry,private television and radio broadcasts, and the film making industry (technical services, filmexports and imports, film distribution, etc.) are still regulated. The Office of InvestmentCoordinating Board (BKPM), while advocating a “New Investment Law” and otherderegulatory measures for foreign investment, has not yet achieved anything specific. Thebill has not been submitted to the legislature yet. Presidential Order No. 127 of December 14,2001, reduces the number of regulated manufacturing sectors, but adds new regulations inservice sectors, including tourism and human-resources development (seminars).

In addition, the devolution of authority to grant investment approvals to the regions,which was implemented in January 2001, has created a situation where the separation ofauthority between the central and regional governments is unclear. Depending on the region,the previous BKPM regional branches have been placed under the jurisdiction of the regionalgovernment, have changed their name, and in some areas are actively pursuing their owninvestment promotion measures. Japan is hoping for improvements, however, sinceproblems still arise in some regions concerning unclear levies on foreign companies, and thelegal effectiveness of contracts in the mining and energy areas.


Indonesia amended its Telecommunication Law on 8 September 2000, eliminatingthe protected state monopoly under the former law (Law No. 3 of 1989). Subsequently,government proclamations have advanced the deadlines for the elimination of monopolies.The state domestic carrier Telecom’s monopoly on local calls was planned to end in 2002(originally planned for 2010), and on long distance domestic calls in 2003 (originally 2005).Indosat’s monopoly on international telecommunications was scheduled to end in 2003(originally 2004).

In August 2002, the government officially permitted Indosat to enter provide localcall services, and in the middle of November the company signed an agreement with Telecomon interconnectivity for telephone services in major domestic cities, including Jakarta andSurabaya.


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In contrast, no progress has been seen regarding the elimination of Telecom’s longdistance domestic calls monopoly and the Indosat’s international telecommunicationsmonopoly, though they were scheduled to be phased out beginning in 2003. Furthermore, thepartnership rule, by which private enterprise carriers entering the market were obliged topartner with either of the state carriers, Telecom (the domestic carrier) or Indosat (theinternational carrier), has been abolished. For the time being, however, the state monopolieswill continue since there will be no actual entry by private enterprise without the enactmentof government ordinances and administrative rules, and since facilities built with capitalparticipation from private companies, including foreign companies, cannot be used under thejoint operations scheme for other purposes.

The Ministry of Transport and Telecommunications is in the process of formulatingrules promoting private enterprise entry. There have been cases in which the new rulesactually inhibited the private sector from entering the market. For example, Minister ofTransport and Telecommunications Decision No. 23 of March 26, 2002, orders thecancellation of partnerships between 12 private sector companies and Telecom for Internetvoice phone (VoIP; "voice over IP") services. Japan will need to continue to monitor theprogress made in formulating government ordinances to deregulate in thetelecommunications sector.

3) Distribution

The law on foreign investment in Indonesia has barred entry of any foreign firm intothe distribution sector.

In the agreement with the IMF on January 15 1998(government ordinance No.15 and16 dated January 21 1998), Indonesia committed to permit retail dealers (100 percentforeign-owned and joint ventures) established by foreign manufacturing firms to sell theirown products or those of other firms to end users, and the above-mentioned export andimport traders to sell goods as retailers from March 31, 1998.

Additionally, the government, in Presidential Order No. 99 of 2 July 1998, permittedforeign capital to enter the wholesale, retail, and distribution industries in all fields, under thecondition that they have partnerships with small local businesses. Although the governmenthas hinted at deregulation showing progress on regulations concerning the sole agent system(integration of manufacturing and marketing), we await more specific measures.

We appreciate their moves to relax regulations on investments in distribution. We hopeIndonesia continues to relax further its regulations so that companies are able to carry outtheir businesses more effectively.

4) Audio-Visual Services and Advertising Services


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Indonesia bars foreign film and video tape distributors from its markets. Allimportation and distribution must be done by 100-percent Indonesian-capital companies. USfilms, for example, can only be imported and distributed within Indonesia through specificorganizations. These regulations have injured the film industries of many countries.

Advertising was not included in the industries released from foreign investmentrestrictions by Presidential Order No. 118 of August 2000. It apparently remains closed toforeign investment including in the form of joint ventures. However, the IndonesianAdvertising Agencies Association (P3I) claims that roughly 15 percent of its approximately200 member companies have some form of relationship with foreign companies, whether itbe capital ties, business tie-ups or cooperative alliances. These companies account forapproximately 50 percent of the Indonesian advertising market. It would appear that foreignadvertising companies, barred from direct investments, are using "round-about investments"to create joint ventures with local companies via companies in other sectors. Japan seeksappropriate deregulation so that such circumvention is not necessary.

4. PHILIPPINES

TARIFF

High Tariff

Even after implementation of its Uruguay Round commitments, the Philippines stillhas several high tariff items, including textile products (maximum of 50 percent), watchesand clocks (maximum of 50 percent), and electrical equipment (maximum of 50 percent).The percentage of bound items is only 66 percent of tariff lines.

We note, however, that the Philippines has been reforming its tariff structure since 1980and has announced that it will enact a uniform effective tariff rate of 5 percent for all itemsexcept selected agricultural products by 2004.

Average tariff rates were reduced to 6.9 percent in 2000. Tariffs on more than half ofall goods are 3 percent, while those on the remainder of all goods are 10 percent, 20 percent,or 31 percent.


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SAFEGUARDS

Safeguard Measures on Imports of Cement Products

In the Philippines, the volume of cement imports from Indonesia, Japan andparticularly Chinese Taipei increased since 1998, and domestic companies, which generallyhad been maintaining prices up until then, suffered from a fall in prices. In response, 12Philippine companies petitioned the Department of Trade and Industry (DTI) for invocationof safeguard measures in May 2001, citing the rapid rise in cement imports. It is noted that,the depreciation of the peso following the currency crisis in 1997 and acquisitions by foreigncompanies led to the subsidiaries of major foreign companies accounting for over 90 percentof production. The 12 companies filing the petition are subsidiaries of four foreigncompanies, including Holderbank.

The Japanese companies argued in reply to questionnaires sent by the DTI and inpublic hearings that Japan was not the cause of pressure on profits because the volume ofimports from Japan was only 2-3 percent of the total import into the Philippines and becausethey did not compete with Philippines products, since they were high quality items. Japanesecompanies called for a fair investigation in accordance with related WTO agreements inreaching a decision on safeguard measures.

In late August 2001, the DTI had almost decided on a provisional determination. On4 September, however, a preliminary injunction was issued in the district court restrainingexecution of the domestic safeguard law on the grounds that it could be unconstitutional, andinvestigation procedures were temporarily suspended. In late October, however, thepreliminary injunction of the district court was overruled on appeal. In November of 2001,therefore, following the provisional decision of the DTI, the Philippines’ Tariff Commission(TC) initiated a full investigation.

Japanese companies made the above arguments repeatedly in their responses to thequestionnaires sent out by TC and again in public hearings. They also argued that thefindings on serious injury in the preliminary decision by DTI were inadequate and that, evenif there were serious injury to the Philippine industry, there was no clear existence of thecausal link between increased imports and serious injury. Japanese firms urged that a fairinvestigation be conducted.

On March 13, 2002, TC found no serious injury or threat thereof (the requirement forthe application of safeguard measures) and therefore no need to take definitive safeguard


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measures on imports of portland cement. The matter was therefore transferred to thejurisdiction of DTI again, which published its final conclusions in April.

There was a dispute about whether DTI could overrule TC's decision and takedefinitive safeguard measures because TC had already overturned the DTI decision thatprovided the rationale for the provisional safeguard measures. The Philippine Ministry ofJustice issued a ruling that the TC interpretation as a matter of domestic safeguard law wasbinding on DTI, and DTI was forced to accept this conclusion.

At this time, 12 Philippine companies sued to obtain an injunction against the April2002 DTI decision to dismiss the application of safeguard measures, and the case is now inlitigation. Because of this, the additional duties collected under the preliminary decision haveyet to be returned. Japan will monitor the outcome of the law suit.

TRADE IN SERVICES


There are two laws that regulate foreign capital in the banking sector: the ForeignBanks Liberalization Act (FBLA) (passed in May 1994) and the General Banking Law of2000 (passed in May of that year). The FBLA sets a ceiling of 60 percent foreign ownershipfor foreign banks establishing operations in the Philippines, and limits the establishment ofbranch offices to five years from the date on which the law was passed and to no more thanten total offices. The FBLA also limits the total capital of foreign banks to less than30 percent of the total capital of all banks. Japan seeks improvements in these regulations.


The Philippines permits only Philippine-capital companies (at least 60 percent ofcapital owned by Filipinos) to engage in public service businesses. Foreign capitalparticipation in the telecommunications sector is therefore limited to less than 40 percent.

3) Construction Services


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The Philippines permits foreign investment except for sectors found on the negativelist created under the Foreign Investment Act. Construction is not on the list, so thePhilippines in theory permits wholly owned foreign construction companies. However, aconstruction permit must be obtained from the authorities under the Constructors LicenseLaw (CLL) before actual construction work can be done The detailed orders to the CLL onlygrant "regular licenses," which are the same as those given to ordinary domestic companies,to companies with less than 40 percent foreign ownership. In contrast, they requirecompanies with more than 40 percent to license each individual project in the case of theirownership. It is therefore possible to establish a wholly-owned foreign construction company,but it is not possible to do business. Japan seeks improvements in this area.

5. VIETNAM

TARIFFS

High Tariff

On December 4, 2002, the government of Vietnam abruptly announced that duties onauto parts would be increased effective January 1, 2003. The previous system provided forlower duties the higher the level of the production process (duties of 40 percent, 20 percentand 5 percent for passenger cars, for example). The new system will change this to a flat70 percent by 2005. The government of Vietnam explains that the purpose of the measure isto foster the domestic vehicles parts industry, but this kind of sweeping tariff raise seriouslyimpairs the ability of businesses to forecast and may pose a serious impediment to businessactivities. The government of Vietnam has postponed implementation of the tariff raise inlight of the reaction from foreign automakers in the country. Japan may need to address tothe measure during WTO accession negotiations if warranted by future developments.


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Reduction in Motorcycle Import Quotas

On 4 September 2002, the Vietnamese government drastically reduced importquotas for motorcycle parts. These measures restricted the import of motorcycle parts for2002 to a total of parts for 1.5 million motorcycles, of which 600,000 were allocated toforeign manufacturers and 900,000 to local manufacturers. This meant a substantialreduction from the original quota allocation of parts for 709,000 motorcycles for Japanesemanufacturers to 365,000. It had such a strong impact on production and sales of Japanesemanufacturers that two Japanese manufacturers were forced to suspend production.

The Vietnamese government has explained that restrictions on motorcycleproduction are a measure to alleviate traffic congestion and accidents. Yet, they are highlylikely to create barriers to smooth business activities. If the Vietnamese government persistswith these measures, then Japan should rectify the problem during Vietnam’s WTOaccession negotiations.

asean - meti.go.jp

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