The political economy of the asean free trade area (afta)

ATTEMPTING DEVELOPMENTAL REGIONALISM THROUGH AFTA: 

THE DOMESTIC POLITICS – DOMESTIC CAPITAL NEXUS 

1

 

 

Introduction 

 

The growth of economic regionalism since the mid-1980s against the backdrop of 

globalisation has generated considerable scholarly interest in the relationship between 

globalisation and regionalism.

2

  The IPE literature offers us the notion of ‘open’ 

regionalism to understand this seeming paradox.  Open regionalism conceptualises 

regionalism as a way station to globalisation, a means through which policymakers 

enhance the participation of their respective national economies in globalisation processes.  

A contrasting model interprets regionalism as an attempt by state actors to collectively 

resist the negative effects of globalisation.  Although providing considerable insight into 

developments in the contemporary world economy, neither of these two ideal-type models 

is able to account for a key empirical puzzle associated with the ASEAN Free Trade Area 

(AFTA),

3

 a project of economic regionalism adopted by governments in Southeast Asia 

during the 1990s.   

 

AFTA has conventionally been explained as a project of open regionalism, adopted 

by the ASEAN member governments as an instrument to attract foreign direct investment 

(FDI) to the ASEAN region through the ‘carrot’ of the single regional market.  Yet, when 

the same governments formally incorporated an investment liberalisation component 

programme within the AFTA project in 1998, they opted to accord full national treatment 

and market access privileges to foreign (non-ASEAN) investors at least ten years later 

than to domestic or ASEAN national investors.  Although member governments removed 

this particular discriminatory clause in September 2001, the fact that a distinction between 

                                                 

Acknowledgements: 

This paper, a revised version of an earlier article, is drawn from the author’s PhD 

dissertation, and has benefited from valuable comments made by Richard Higgott, Shaun Breslin, David 

Camroux, John Ravenhill, Kevin Hewison, Kanishka Jayasuriya, and Philip Creighton at various points in its 

writing.   

 

1

 A revised version of this paper will be published in Third World Quarterly, 24 (2) in 2003. 

2

 Gamble and Payne (1996).  Regionalism is defined here as a states-led project to coordinate economic 

policies and arrangements in a given region. 

3

 ASEAN is the ten-member Association of Southeast Asian Nations.  AFTA was formally adopted as a 

regional project in 1992 by Indonesia, Malaysia, Singapore, Thailand, the Philippines and Brunei, AFTA’s 

core or founding members.  ASEAN’s new members – Vietnam, Laos, Cambodia and Myanmar acceded to 

AFTA when they joined ASEAN. 

1 

---

foreign and domestic investors was adopted and maintained for a three-year period is 

puzzling given AFTA’s acknowledged role as a magnet for foreign investment.   

 

This article explains this as a move by ASEAN member governments spearheaded 

by Malaysia to use the investment liberalisation programme of AFTA as a developmental 

tool to build up domestic firms, in addition to using AFTA’s tariff liberalisation 

programme to attract FDI to the single regional market.  Specifically, the idea was to 

nurture domestic capital by using both the expanded regional market and the offer of 

temporary investment privileges to domestic-owned capital ahead of foreign investors.  

These temporary investment privileges took the form of earlier market access and national 

treatment for ASEAN national investors in the ASEAN regional market, particularly in 

non-manufacturing sectors, and represents an attempt at what I term ‘developmental’ 

regionalism.  AFTA, in short, displayed the features of both open and developmental 

regionalism due to the political significance of foreign and domestic-owned capital in 

ASEAN.  While both forms of regionalism were driven by the imperative of growth, 

distributive concerns were weaved into the concern with growth in developmental 

regionalism as governments sought to direct economic benefits to those segments of 

domestic capital that were important in sustaining elite rule.  The analysis suggests that 

although AFTA was triggered in the first instance by the external pressures associated 

with globalisation, it was the tussle at the domestic level between the imperatives of 

growth and domestic distribution (directed towards politically important domestic-owned 

businesses) that shaped the distinctive way economic cooperation unfolded.  In short, the 

nature of domestic coalitions was a crucial mediating variable between globalisation and 

regional outcomes.   

 

Following this brief introduction, the next section develops the notion of 

developmental regionalism by drawing on strategic trade theory from International 

Economics.  This section also elaborates on how developmental regionalism relates to 

globalisation, including a comparison with existing ideal-type models of regionalism, 

namely open regionalism and the resistance version, and suggests why such a 

developmental project might have proved attractive to governments in ASEAN.  This 

concept is then applied to AFTA in the following two sections, which explain 

developmental regionalism as a project through which a number of ASEAN governments 

2 

---