least 51 per cent in keeping with prevailing Thai
investment policy, at least during the
initial negotiations on this matter. On the other hand, the Thai Commerce Ministry that
has overall charge of AFTA policy and negotiations was more concerned about
emphasising the AIA as a tool to attract FDI rather than its developmental role. It was
able to pressure the Board to lower the minimum ASEAN equity figure to 30 per cent.
26
The other countries, all with varying degrees of restrictions on foreign participation,
preferred a more conservative definition, however. In the end, the ASEAN governments
agreed to define an ASEAN investor as a domestic investor according to each prospective
host country’s local investment laws and policies.
27
Flexibility prevailed for two reasons.
First, it allowed individual governments the independence to adopt mixes of
domestic/ASEAN and foreign investment that met national needs. Second, it continued to
facilitate joint ventures between foreign and domestic/ASEAN firms as a way of building
up the domestic partner through technology transfer and learning from the foreign
partner.
28
The Role of Domestic-Owned Capital in ASEAN
The different positions of the ASEAN governments on the AIA reflect the political
salience of domestic-owned capital in these societies and the coalitions formed by the
latter with the political/ruling elite. Although Thailand and Singapore did not actively
champion a developmental clause in the AIA, the absence of a challenge from these
governments on the issue needs to be explained. As the following discussion shows, the
Malaysian move to privilege domestic/ASEAN investors through the AIA was actually
helpful to domestic-owned capital in Singapore and Thailand undertaking expansion in the
regional market.
Singapore
Although FDI had been the principle source of growth for Singapore during the
1970s, the mid-1980s recession led the government to adopt a new growth strategy that
emphasised the expansion of domestic capital, particularly non-manufacturing capital
through regionalisation, although FDI remained important (Yeung, 1999: 8). By the early
26
Bangkok Post, ‘BOI backs 30% as level for national treatment’, 17 January 1998.
27
Bangkok Post, ‘Proposal aims to classify ASEAN investors as locals’, 21 March 1998.
28
Discussion with then ASEAN Deputy Secretary General, Dr Suthad Setboonsang, July 2000.
16
1990s, the government had also planned to use regional market expansion to groom a new
generation of Singaporean TNCs capable of competing with global TNCs (Wong and Ng,
1997: 136). The shift in emphasis to domestic capital was seen as necessary to reduce
Singapore’s overwhelming reliance on FDI. It also brought political benefits to the ruling
government by co-opting domestic private capital that had for various reasons been
sidelined in the past in favour of FDI (Parsonage, 1994: 10). Domestic private capital was
heavily concentrated in service-related sectors, some of which was already going regional
in ASEAN. As a result of this shift in economic strategy, domestic private capital became
part of the ruling elite in the 1990s, albeit as the junior partner in the ruling coalition of
political/state elites and state capital. The privileging of ASEAN investors in the AIA did
not contradict Singapore government strategy to support economic restructuring based on
the regional expansion of domestic capital.
Thailand
Domestic capital has played a key role in the Thai economy from the 1950s.
Although Thailand experienced an FDI boom since 1985, foreign capital did not
overwhelm domestic capital, which also expanded considerably after 1985, often in joint
ventures with FDI (Phongpaichit and Baker, 1996: 156). Most importantly, domestic
capital, particularly urban (Bangkok-based) big business had also begun to expand
overseas. Unlike Singapore, Thailand did not have a formal policy to develop domestic
capital or a formal regionalisation policy to support the overseas expansion of Thai private
capital. Nevertheless, the government’s commitment to AFTA served the interests of the
Bangkok-based business elite, which was in close alliance during the 1990s with both
elected politicians and liberal technocrats in the bureaucracy who advocated open
economic policies for Thailand, including regional trade liberalisation (Krongkaew, 1997).
Overseas expansion in the 1990s by outward-focussed elements of Thai domestic capital
was especially evident outside manufacturing industry, where large family-based Thai
conglomerates dominated (Phongpaichit and Baker, 1998: 28). The Shinawatra group, the
Samart group, the Charoen Pokphand group and the Ucom group, for instance, ventured
overseas to Southeast Asian markets in a variety of activities related to their core domestic
business in telecommunications and information technology. As in the case of Singapore,
the decision to privilege ASEAN investors in the AIA did not necessarily contradict the
interests of the political and state elites nor that of its business allies since it clearly
benefited internationally oriented Thai domestic businesses seeking to venture abroad.
17