The political economy of the asean free trade area (afta)
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- Conclusion
negative correlation was not lost on ASEAN officials and leaders. 37 China’s potential accession to the WTO and the anticipated diversion of FDI to China as a result added to the sense of urgency among the ASEAN leaders with regard to the FDI situation.
Concern about the future of FDI flows to ASEAN became especially pronounced by the middle of 2001, and it was this that finally prompted member governments including Malaysia to review the AIA in September 2001. 38 By this time, it seemed clear that growth in ASEAN was in serious jeopardy as all the main engines of growth in the global economy – the US, Western Europe and Japan – seemed headed into recession. In fact, it had become clear by early 2001 that a global economic slowdown was imminent, threatening the recovery that most member economies had experienced over 1999-2000 (MIER, 2001a&b). Falling demand in the US during 2001, still the region’s main export market meant that the ASEAN region appeared to be facing a more severe downturn than the 1997-98 regional financial crisis. Not only were export markets threatened, but foreign investment too was expected to slow further as a result. 39
In short, growth and FDI had, by the middle of 2001, emerged as the overwhelming priority for the ASEAN governments, including Indonesia and Malaysia. In addition, foreign investors, notably American investors pressed the ASEAN governments to accelerate national treatment under the AIA by citing the need to counter the diversion of FDI to China. 40 It must be emphasised, however, that the relative decline of FDI inflows to ASEAN throughout the 1990s, and especially since the financial crisis, was not directly the result of the ASEAN-foreign distinction in the AIA. Nevertheless, there was concern in ASEAN that the clause could send the wrong signals to foreign investors at a time when ASEAN was facing a rather precarious foreign investment situation. The ASEAN decision of 16 September 2001 to allow market access and national treatment for all investors by 2010 in the non-manufacturing sectors was, therefore, directed at re-affirming ASEAN’s openness to FDI. 41 The attempt at developmental regionalism was halted, and open regionalism (at least, the FDI variant) has re-emerged as the main feature of ASEAN economic regionalism in the quest for growth.
37 Financial Times, ‘Foreign investors desert Southeast Asia for China, 13 October 2000. 38 Interview with a senior Malaysian trade official, December 2000. 39 See Chairman’s Statement, Seventh ASEAN Summit, 11 November 2001. 40 Press Release of the US-ASEAN Business Council, 13 September 2001. 41 See Press Statement, Fourth AIA Council Meeting, 14 September 2001. 23 Yet, it is also important to bear in mind that member governments have not agreed to implement complete regional investment liberalisation in non-manufacturing sectors anytime soon. This is targeted for 2010, suggesting that at the national level, full investment liberalisation will proceed cautiously. Domestic capital, in short, remains a key focus in the individual ASEAN economies, but support for it will likely be addressed through national instruments where possible and available rather than concerted regional ones. The regional instrument has been reserved once again to realise the FDI/growth imperative, but this is not to suggest that domestic distributive priorities have been marginalised across ASEAN. In fact, the AFTA experience confirms that the tussle between growth and domestic distribution is a key dynamic driving regional cooperation. Although not discussed in this paper, the delays in negotiating services liberalisation and Malaysia’s temporary withdrawal of automobiles from AFTA disciplines further reveal that there are sectors where regional liberalisation will proceed cautiously, driven by domestic distributive priorities despite the overall concern with growth. 42 Thus, while governments in Southeast Asia may turn to regionalism as a collective policy response to the pressures associated with globalisation, as in the case of AFTA, it remains the tussle between growth and domestic distributive imperatives that will ultimately shape regional cooperative outcomes and the precise form of regionalism.
Aside from its empirical insights into the dynamics of ASEAN economic regionalism in the 1990s, this paper is of wider analytical significance. Theoretically, it confirms the domestic level as a key level of analysis in explaining the relationship between globalisation and economic regionalism. Thus, regionalism may be one of three basic types, namely open regionalism, a resistance model, or a developmental version. Which project ultimately emerges is determined at the domestic level, where the domestic social and political setting mediates globalisation in significant ways. The analysis of AFTA has demonstrated that the particular domestic setting influences the way international events are interpreted by policymakers and other groups, their potential impact assessed and policy choices made. In short, while the systemic level –
42 This is discussed more fully in Nesadurai (2001). 24 globalisation – may well provide the initial trigger or impulse for regionalism, domestic political dynamics that shape the nature of domestic coalitions mediate the final outcome. It is precisely this form of interaction that gave rise to the distinct approaches to economic regionalism we have seen in ASEAN.
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