YAUNG CHI OO TRADING PTE.

LTD v AUTHOR: Jade

GOVERNMENT UNION OF MYANMAR
NOTES: (if applicable)
ASEAN I.D. Case No. ARB/01/1, 31
TOPIC:
Claimant Yaung Chi Oo Trading Pte. Ltd (YCO)
PONENTE:
Respondent Union of Myanmar
FACTS:
The case was brought under the ASEAN Agreement for the Promotion and Protection of
Investments of 1987 and the 1998 Framework Agreement for the ASEAN Investment Area.
Myanmar is a party to the 2 Agreements.
The dispute, which was conducted und.er the ICSID Additional Facility Arbitration Rules, concerned a
dispute arising from an interim seizure and a judicial winding up order of a joint venture company in
Myanmar.
YCO is a company incorporated in Singapore.
29 November 1993 YCO concluded a Joint Venture Agreement with Myanmar Foodstuff Industries (MFI)
for the establishment of a joint venture company, Myanmar Yaung Chi Oo Company Ltd (MYCO) to
operate the Mandalay Brewery and to market its products.
o MFI is a Myanmar State-owned corporation.
o Allocation of shares 55% to MFI (to contribute machinery, other items and the use of land
comprising the beer factory) and 45% to YCO (capital, expertise, marketing, and provision of
foreign raw materials)
o The term of the Agreement is for 5 years unless terminated earlier for a cause.
o The issue of a permit under the Union of Myanmar Foreign Investment Law and Procedure was a
condition precedent to the entry into force of the Agreement and the incorporation of MYCO.
o The joint venture is subject to the laws and jurisdiction of Myanmar
MYCO began operations in October 1994.
o According to YCO, the output of the brewery and its profits significantly increased.
At the time of the conclusion of the joint venture, Myanmar was not yet a member of the
ASEAN. It applied for membership in 1997 and was admitted to the ASEAN.
Between December 1997 and November 1998, armed agents of Myanmar occupied the brewery and
accounts of its directors were unlawfully frozen.
November 1998 the initial contract expired without renewal.
February 1999 the Myanmar Foreign Investment Commission appointed an inspector and manager to
MYCO.
Myanmar became a party to the 1998 Framework Agreement for the ASEAN Investment Area
which came into force in June 1999.
December 1999 a winding up order was made by a Myanmar court despite opposition of YCO.
YCO appealed against the winding up order to the Myanmar Supreme Court but was unsuccessful.
29 June 2000 YCO commenced arbitration proceedings under Article X of the 1987 ASEAN
Agreement with allegations such as:
o The conduct of Myanmar was in breach of substantive provisions of the 1987 ASEAN Agreement,
particularly Articles III, IV, VI on fair and equitable treatment, full protection and compensated
expropriation.
A Tribunal was constituted with 3 arbitrators:
o Professor James Crawford (Australia)
o M. Francis Delon (France)
o Professor Sompong Sucharikul (Thailand) - President of the Tribunal.
5 January 2002 An initial hearing on jurisdiction was held in Brunei.
o YCO made an application for provisional measures which was dismissed by the Tribunal for the
reasons that there was no necessity for such measures when MYCO had already been wound up
and that the measures related to preservation and discovery of evidence lacked specificity.
o The Tribunal also ordered that the issue of jurisdiction to be joined to the merits.
Myanmar argued that
o The Tribunal lacked jurisdiction because of the absence of privity of consent between YCO and
Myanmar;
o The Claimant failed to exhaust local remedies available to it.
ISSUE(S):
Whether or not the Tribunal has jurisdiction over the dispute
HELD:

The Tribunal held that it lacked jurisdiction over the dispute.

RATIO:
The Tribunal examined the terms of the 1987 ASEAN Agreement and found no such requirements on
exhaustion of all available remedies first.
As to the argument of Myanmar that YCO had not made any investment, the Tribunal concluded that
there was a substantial inward direct investment into Myanmar because the parties had accepted the
existence of capital contributions made by YCO and machinery and supplies were shipped to Myanmar
and paid for YCO.
Myanmar also argued that YCO was not effectively managed from Singapore and hence, lost the treaty
protection for company incorporated in the territory of Singapore as a Contracting Party of the 1987
ASEAN Agreement. The Tribunal acknowledged the dramatic change in the level of effective
management in Singapore but rejected this argument given the companys compliance with the
requirements of the Singaporean law, such as the existence of a resident director and the required
annual auditing of accounts.
The Tribunal agreed with Myanmar that the investment had not been specifically approved and
registered in writing after the 1987 ASEAN Agreement entered into force for Myanmar in 1997 and thus,
did not qualify as such under this Agreement. Even though the investment had been approved under
domestic law before 1997 under Article II(3), an express subsequent act amounting to written approval
and registration would be required to make the investment protected under the Agreement.
The Tribunal rejected the argument of YCO that the 1998 ASEAN Agreement broadened the definition of
investment for the purpose of arbitral jurisdiction under the 1987 ASEAN Agreement. It observed that
the concepts of investment under the two Agreements were distinct and separate and there was no
intention to substitute one for the other or to merge them.
YCO argued that jurisdiction could be attached on the basis of the most-favoured nation clause
contained in Article 8 of the 1998 ASEAN Agreement, read in conjunction with the 1998 bilateral
investment treaty between Myanmar and the Philippines. The Tribunal disagreed because this treaty
provided for a different mode of dispute settlement and a different appointing authority.
The ASEAN was founded in 1967. It aims to foster good relations among member states and within the
region, especially in the field of economic development.
ASEAN has its own system of investment protection which was first established by the 1987 ASEAN
Agreement.
The conditions for a direct foreign investment to receive the more favorable protection envisaged in the
1987 Agreement include specific approval in writing and registration.
In case of new investments, the Agreement only applies to INVESTMENTS BROUGHT INTO, DERIVED FROM
OR DIRECTLY CONNECTED WITH INVESTMENTS BROUGHT INTO THE TERRITORY OF ANY CONTRACTING
PARTY BY NATIONALS OR COMAPNIES OF ANY OTHER CONTRACTING PARTY WHICH ARE SPECIFICALLY
APPROVED IN WRITING AND REGISTERED BY THE HOST COUNTRY AND UPON SUCH CONDITIONS AS IT
DEEMS FIT FOR THE PURPOSES OF THE AGREEMENT.
In case of existing investments, there must have been SPECIFICALLY APPROVED IN WRITING AND REGISTED
BY THE HOST COUNTRY UPON SUCH CONDITIONS AS IT DEEMS FIT FOR PURPOSES OF THE AGREEMENT,
SUBSEQUENT TO ITS ENTRY INTO FORCE.
In both cases, a company investing in the host State must not only be incorporated in or constituted under
the laws in force in the territory of another State Party, but must have its PLACE OF EFFECTIVE
MANAGEMENT in that State.
The 1987 Agreement was thus subject to important limitations in terms of its coverage as compared to
other bilateral or multilateral investment protection treaties. However, the ASEAN has a tradition of
progressively introducing improvements or revisions to existing Agreements or Framework Agreements by
way of subsequent Protocols.
POSITIONS OF THE PARTIES

MYANMAR
There is no contractual link or privity between the Parties
YCO failed to exhaust contractual remedies, specifically, arbitration against its joint venture partner and
also failed to exhaust other local remedies under Myanmar law.
The 1987 Agreement was inapplicable to this investment [issue] because by the time the Agreement
entered into force for Myanmar, YCO was no longer effectively managed from Singapore.
There had been no subsequent approval and registration of the investment as required by the Agreement.
YCO
Effective control was required only at the time the investment was initiated. The continuing compliance
with the requirements of Singapore law for local companies was sufficient, especially when combined with
other activities such as procurement and shipment of supplies from Singapore, to amount to effective
management.
The continued valid approval of its investment under the Myanmar Foreign Investment Law involved
subsequent approval of the investment. Various acts by organs and agents of Myanmar, including receipt of
reports and approval of imports for the purposes of the joint venture were sufficient for this purpose.
DID YCO MAKE A FOREIGN INVESTMENT IN MYANMAR?
The 1987 ASEAN Agrement requires both local incorporation and effective management. The requirement
of effective management of the investing company in the place of incorporation was primarily to avoid
what has been referred to as protection shopping - i.e. the adoption of a local corporate form without any
real economic connection in order to bring a foreign entity or investment within the scope of treaty
protection.
There is no evidence of such a scheme is present in this case. YCO was effectively managed in Singapore
even after the owner moved to Myanmar.
Effective management, once established is not readily lost, especially since the effect will be the loss of
treaty protection.
WAS THE INVESTMENT SPECIFICALLY APPROVED IN WRITING AFTER JULY 23 1997 AS REQUIRED BY THE
1987 AGREEMENT?
The Tribunal noted that a requirement of specific approval and registration already existed under the
legislation of certain parties to the 1987 Agreement, especially those with centrally managed economies.
This is the situation in Myanmar where no foreign investment can be made without specific approval of the
Government of Myanmar acting through the FIC.
Under the Foreign Investment Law, this approval is given in writing after a thorough process. In the
Tribunal's view, this process is in substance that is described in the 1987 ASEAN Agreement.
A party to the 1987 ASEAN Agreement could establish a separate register of protected investments for the
purposes of the Agreement, in addition to or in lieu of approval under its internal law. If Myanmar wished to
draw a distinction between approval for the purpose of the 1987 ASEAN Agreement and approval for the
purposes of its internal, it should have made it clear to potential investors that both procedures co-exist
and further, how an application for treaty protection could be made. At the least it would be appropriate to
notify the ASEAN Secretariat of any special procedure. --> None of these things was done. In the Tribunal's
view, if a State Party to the 1987 ASEAN Agreement unequivocally and without reservation approves in
writing a foreign investment proposal under its internal law, that investment must be taken to be registed
and approved also for the purposes of the Agreement.
HOWEVER, UNDER ARTICLE II(3) states that investments made before the Agreement entered into force are
not automatically covered, even if they were approved in writing and registered under the law of the host
State when they were made. The mere fact that an approval and registration earlier given by the host State
continued to be operative after the entry into force of the 1987 Agreement for that state is not sufficient.
THE SCOPE AND OPERATION OF THE FRAMEWORK AGREEMENT

Taking the effect of Articles I and II of the 1987 Agreement together, it applies, only to investments made
by companies effectively managed in an ASEAN Member State, which investments have been specifically
approved in writing and registed by the host country and subject to any conditions the host country may
impose.
The 1998 Framework Agreement does not mention any requirement of effective management nor any
requirement of specific approval and registration, and it treats any ASEAN equity as equivalent to local
equity for the purpose of satisfying local equity requirements under the laws of the host country.
To establish that the Framework Agreement applies to existing investments, and YCO could be considered
an ASEAN investor in terms of the Agreement is however, not sufficient to establish the Tribunal's
jurisdiction.
The essential difficulty is that the concepts of investment in the 1987 Agreement and ASEAN investment in
the 1998 Framework are distinct and separate and there is no indication of any intention on the part of the
ASEAN Members to substitute one for the other in 1998 or to merge or fuse them.
1987 - focuses on local incorporation and effective management, and pays no regard to the ultimate source
of the funds used.
1998 - focuses on the source of equirt and on local content requirements.
The 2 Agreements are clearly intended to operate separately. It simply makes it clear that in relation to any
investment which is covered by both Agreements, the investor is entitled to the benefit of both and thus of
the most beneficial treatment afforded by either.
The 1998 Framework Agreement does not give YCO any new rights in relation to the present claim.

The Tribunal held that it lacked jurisdiction over the dispute. On costs of the arbitration, the Tribunal
decided that it should be shared equally and that each party should bear its own expenses.

The ASEAN new investment treaty (ASEAN Comprehensive Investment Agreement) signed in February
2009, contains the requirement that covered investments are those have been admitted according to the
ASEAN host states laws, regulations, and national policies, and where applicable, specifically approved in
writing by the competent authority of a Member State. It has solved the complexity in the relationship
between the 1987 and 1998 ASEAN Agreements by replacing both of them.
CASE LAW/ DOCTRINE:
DISSENTING/CONCURRING OPINION(S):