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

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 

---