The political economy of the asean free trade area (afta) - səhifə 8
the ASEAN economies to FDI, did not reject the idea of a global investment regime, while
the Thai government was rather ambivalent on this point.
Using the AIA as a developmental tool to nurture domestic capital
In response to concerns about the future of emerging domestic capital, the
Malaysian side advocated a developmental role for the AIA that would help to nurture domestic capital through the privileging of ASEAN investors in the AFTA market. The
single regional market under AFTA would provide the necessary scale and learning
economies for domestic firms. Preferential market access and national treatment
privileges for ASEAN investors was aimed at providing domestic (ASEAN) firms space to
grow and become internationally competitive before TNCs were allowed full investment
privileges in the regional market.
A crucial part of this project was also to encourage thedevelopment of ASEAN conglomerates through joint ventures or other forms of alliances
between ASEAN investors as a means of competing with the global corporate giants. A
senior official from the ASEAN Secretariat explained, “the ASEAN countries saw the
need to develop ASEAN multinationals using the grace period before foreign (non-
ASEAN) investors would be accorded the same privileges”.
Whether the idea of usingthe AIA as a developmental tool was workable is a separate issue that cannot be addressed
in this paper. Why such a project was adopted is the more interesting question, to be
addressed in the next section.
The Indonesian government explicitly supported the Malaysian position on theAIA when then Coordinating Minister for the Economy, Ginandjar Kartasasmita, publicly
endorsed in October 1998 the Malaysian suggestion of using the AIA to develop ASEAN
multinationals and conglomerates that would be globally competitive.
Althoughtechnocrats from the Commerce Ministry in Thailand found the privileging of ASEAN
investors in the AIA to be contradictory to AFTA’s role as an instrument to attract FDI to
21 the Thai government did not reject the Malaysian suggestion.22
Singapore, although it had always advocated openness to foreign capital.
Interview with Karun Kittisataporn, a senior official on ASEAN from the Thai Commerce Ministry,
Interview with Dr Wee Kee Hwee, July 2000.20
Bisnis Indonesia (Indonesian Business), 10 October 1998.
Interview with Karun Kittisataporn.22
Interview with an official of the Singapore Trade Development Board, conducted via e-mail in June 2001.
the need to initially accord investment privileges to ASEAN investors in the AIA and only
later to extend these to non-ASEAN investors.
This point had, in fact, been extensivelydebated during the three years of consultations that led up to the formal signing of the AIA
Agreement in October 1998. It had been noted at these consultations that privileging
ASEAN investors would be difficult to justify on economic grounds, since foreign TNCs
possessed the wealth-creating assets that the ASEAN countries required in order to
participate in increasingly sophisticated global production.
Nevertheless, it was alsoacknowledged that preferential treatment of ASEAN investors could potentially stimulate
intra-ASEAN investments and facilitate the emergence and growth of indigenous ASEAN
multinationals, which were a necessary vehicle “to compete in a world economy
increasingly characterised by globalisation and competition”(Chia, 1996: 21). ASEAN
leaders and policymakers were broadly united on the importance of domestic firms
becoming large and/or multinational as a means of meeting global market competition.
Where the investment officials differed was on how to define an ‘ASEAN’investor in terms of its minimum ASEAN equity share (or maximum foreign equity share).
This was a critical point in the negotiations, since many domestic investors in the ASEAN
countries were also involved in joint ventures with foreign capital. In any case, FDI was
an important player in ASEAN and the ASEAN governments were not advocating keeping
out FDI; they were only interested in nurturing domestic capital through temporary
privileges accorded to the latter, and particularly in non-manufacturing sectors. Thus,
developmental regionalism was to be achieved through the AIA without necessarily
jeopardising the role of the CEPT tariff liberalisation component of AFTA in attracting
manufacturing sector FDI.
Thus, it was not surprising that a very open economy like Singapore advocated aliberal definition of an ASEAN investor that stipulated only a minimum 30 per cent
ASEAN equity share. This meant that any venture up to a maximum foreign equity share
of 70 per cent could qualify for national treatment and market access privileges.
TheThai Board of Investment, in contrast, advocated a minimum ASEAN equity share of at
See Bangkok Post, ‘Hopes vary for investment area’ 11 September 1996.24
See the argument put forward by economists at these meetings (Chia, 1996: 20).
Bangkok Post, ‘Investment area plan proceeding’ 9 January 1998.15
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