The Influence of Domestic Interests on ASEAN politics

Prasse, Kathrin

The Influence of Domestic Interests on ASEAN politics

Help or Hinders to Economic Integration?

von Kathrin Prasse (Autor:in)

Politik - Internationale Politik - Thema: Globalisierung, pol. Ökonomie

Zusammenfassung

Inhaltsangabe:Abstract:
Until the 1990s, the Association of Southeast Asian Nations (ASEAN) had a long, however unsuccessful tradition of promoting regional economic development through inter-governmental cooperation. This changed in 1992 with the foundation of the ASEAN Free Trade Area (AFTA), which is regarded as ASEANs first serious step towards regional economic integration.
AFTAs aim is to abolish trade barriers among the participating countries, be it tariffs or non-tariff barriers. The member countries are therefore required to liberalize their economies through adjustments of their domestic tariff systems and through the elimination of non-tariff barriers (NTBs). The formerly high degrees of economic protection have to be gradually reduced and ultimately abolished completely measures, that the ASEAN member states were long unwilling to implement. Hence, ASEANs decision to found AFTA in 1992 was very sceptically perceived by the international community.
Indeed, the development of AFTA displays two contrary characteristics. On the one hand, the ASEAN members decided to accelerate the implementation of AFTA by five years and complemented it with two additional programmes, the ASEAN Investment Area (AIA) and the ASEAN Framework Agreement on Services (AFAS). On the other hand, the institutional design of AFTA provides the member countries with a high degree of flexibility to prolong or delay the process of implementation and re-negotiate commitments already made.
Two conclusions can be drawn from the above stated developments: On the hand, the signing of the AFTA framework in 1992 clearly indicates a major shift in the member states attitude towards regional economic integration. Moreover, the initially quick implementation of the original agreement, as well as its acceleration by five years and the inclusion of those potentially contentious issue areas namely trade in unprocessed agricultural products and in services which the member countries had excluded from the original AFTA framework, underline this shifting attitude towards regional economic integration. On the other hand, some member states delayed the implementation of tariff reductions and the negotiation of sensitive products, indicating that they were not equally committed to the process of implementation.
These conclusions lead to the two research questions that this thesis answers:
Firstly, why did the Southeast Asian states change their preferences towards regional […]

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Inhaltsverzeichnis

Kathrin Prasse

The Influence of Domestic Interests on ASEAN politics

Help or Hinders to Economic Integration?

ISBN-10: 3-8324-9865-6

ISBN-13: 978-3-8324-9865-8

Druck Diplomica® GmbH, Hamburg, 2006

Zugl. Westfälische Wilhelms-Universität Münster, Münster, Deutschland,

MA-Thesis / Master, 2006

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Autorenprofil

Kathrin Prasse

M.A. Southeast Asian Studies

Westfalenstr. 90

48165 Münster

Tel.: 02501-928759

Email: Kathrin.Prasse@web.de

meine persönlichen Daten

geboren am 14.02.1980 in Dortmund,

ledig, ortsungebunden

meine wichtigsten Eigenschaften

Einsatzbereitschaft, Teamfähigkeit, Verantwortungsbewusstsein,

Aufgeschlossenheit, Organisationstalent, Flexibilität

mein angestrebter Tätigkeitsbereich

Politische Beratung mit Südostasienschwerpunkt,

Entwicklungszusammenarbeit

Studium

26.06.2006

Masterprüfung

Akad. Grad:

Master of Arts of Southeast Asian Studies

(Abschlussnote: 1,29)

Masterarbeit: The Influence of Domestic Interests on ASEAN

Politics - Help or Hinders to Economic Integration?

2004 - 2006

Masterstudium Südostasienwis-

senschaften an der Westfälische Hauptfach:

Politikwissenschaften

Wilhelms-Universität Münster

Nebenfächer: Soziologie, Ethnologie

2002 - 2008

Magisterstudium Politikwissen-

schaften an der Westfälische

Hauptfach:

Politikwissenschaften (Fokus: Entwicklungspolitik)

Wilhelms-Universität Münster

Nebenfächer: Volkswirtschaftslehre, Ethnologie

Beruflicher Werdegang

Frühjahr 2004

Ferme du Chevres, Lisieux

Zweimonatiges Berufspraktikum in Frankreich

Sommer 2002

Greenways Thailand, HadYai

Dreimonatiger freiwilliger, sozialer Dienst in thailändischer NGO

2002 - 2003

Westfälische Hypothekenbank,

Projektmitarbeiterin in den Bereichen Schuldschein- und

Dortmund

Wertpapierverwaltung, Securitization and Structured Finance

1991 - 2002

Berufsausbildung zur

Ausbildungsbeginn im August 1999

Bankkauffrau, Dortmund

Abschlussprüfung im Januar 2002 (Abschlussnote 2,0)

Sprachen

16 Jahre

Englisch

verhandlungssicher

3 Jahre

Wirtschaftsenglisch

KMK-Foreign language certificate, niveau III (vantage)

5 Jahre

Latein

Großes Latinum

3 Jahre

Thai

Fortgeschrittenenkurs III (einfache Verständigung in Wort u. Schrift)

2 Jahre

Italienisch

einfache Verständigung, Teilnahme an Schüleraustauschen

2 Jahre

Französisch

einfache Verständigung, Praktikumserfahrung

weitere Kenntnisse

PC-Kenntnisse

Sehr sicherer Umgang mit MS Office, Kenntnisse in LaTEX

Führerschein

Pkw, Klasse 3

"I have, of course, no crystal ball, only an approach that says: pay attention to

politicians and other public individuals acting in context. Assess the environment,

both domestic and international, from which they draw resources. Observe closely

how they accumulate, mobilize, and deploy those resources, and how others react to

them." (Liddle: 1996; Quoted in Case: 2002: p. 32).

iii

Table of Contents

List of Tables...

page

List of Charts... v

List of Figures... v

List of Appendixes... v

List of Abbreviations... vi

1. Introduction... 1

1.1. Background to and significance of this research... 2

1.2. Research design and existing literature... 4

1.3. Scope and applicability of research... 7

1.4. Research method... 10

1.5. Content outline... 11

2. Theoretical Framework... 13

2.1. Regional economic integration in theory... 13

2.2. Interests, coalitions, and political influence in theory... 15

2.2.1. Economic interests and coalition-forming... 15

2.2.1.1. The internationalist coalition... 17

2.2.1.2. The nationalist coalition... 18

2.2.2. Political institutions, political influence and state capacity... 19

2.2.3. The independent and the intervening variables... 20

2.2.4. The dependent and its operational variable... 22

2.3. Conclusion ...

3. Economic development and regional economic integration... 25

3.1. Overview: patronage and early economic development ... 25

3.1.1. Indonesia... 29

3.1.2. Malaysia... 30

3.1.3. Thailand... 31

3.1.4. Summary... 32

3.2. From regional economic cooperation to integration... 33

3.2.1. Early economic cooperation: the PTA... 33

3.2.2. Transition towards regional economic integration... 34

3.2.3. Regional economic integration through AFTA... 35

3.3. Summary and conclusion... 39

4. Interests, coalitions, political influence and policy outcome...

...

4.1. The role of FDI: changing investment patterns... 42

4.2. Country-specific analysis: The ASEAN Three... 49

4.2.1. Indonesia... 49

4.2.1.1. Economic policy-making and state capacity... 50

4.2.1.2. Relevant actors: economic interests and political influence... 51

4.2.1.2.1. The role of the president... 52

4.2.1.2.2. The role of the bureaucracy... 52

4.2.1.2.3. The role of the business actors... 54

4.2.1.3. AFTA's pre-founding phase: coalition-forming and

economic policy outcome from 1985 to 1990...

4.2.1.4. AFTA's implementation phase: coalition-forming and

economic policy outcome from 1991 to 1995...

4.2.1.5. Preliminary conclusion... 69

4.2.2. Malaysia... 70

4.2.2.1. Economic policy-making and state capacity... 71

4.2.2.2. Relevant actors: economic interests and political influence... 72

4.2.2.2.1. The role of the prime minister... 73

4.2.2.2.2. The role of the bureaucracy... 74

4.2.2.2.3. The role of the business actors... 76

4.2.2.3. AFTA's pre-founding phase: Coalition-forming and

economic policy outcome from 1985 to 1990...

4.2.2.4. AFTA's implementation phase: coalition-forming and

economic policy outcome from 1991 to 1995...

4.2.2.5. Preliminary conclusion... 87

4.2.3. Thailand... 87

4.2.3.1. Economic policy-making and state capacity... 88

4.2.3.2. Relevant actors: economic interests and political influence... 90

4.2.3.2.1. The role of the bureaucracy... 90

4.2.3.2.2. The role of the business actors... 92

4.2.3.2.3. The role of the governments... 96

4.2.3.3. AFTA's pre-founding phase: Coalition-forming and

economic policy outcome from 1985 to 1991...

101

4.2.3.4. AFTA's founding phase: Coalition-forming and economic

policy outcome from 1991 to 1992...

103

4.2.3.5. AFTA's implementation phase: Coalition-forming and

economic policy outcome from 1992 to 1995...

106

4.2.3.6. Preliminary conclusion... 108

4.3. Summary and conclusion: the influence of domestic interests on the

foundation and implementation of AFTA...

111

5. Assessment and final conclusion... 116

5.1. Summary of analysis... 116

5.2. Assessment of the theoretical framework... 124

5.3. Final conclusion... 127

6. Bibliography... 128

7. Appendix... 136

8. Declaration... 151

Tables, Charts, Figures, and Appendixes

List of Tables

Table 2.1

Interests, coalition-forming and political influence in theory... 18

Table 3.1

Summary: the CEPT Acceleration for ASEAN-6...

Table 4.1

Economic interest and political influence of foreign investors... 46

Table 4.2.1

Actors' interests, coalition-forming and political influence... 60

Table 4.2.2.

Actors' interests, coalition-forming and political influence... 82

Table 4.2.3.

Actors' interests, coalition-forming and political influence... 100

List of Charts

Chart 4.1

Growth of GDP of the ASEAN Three economies from 1985 to

1997...

Chart 4.2

Flow of world-FDI to ASEAN-10 and China from 1985 to

1997...

List of Figures

Figure 2.1

Economic segmentation under free trade conditions... 13

Figure 2.2

Economic segmentation under protectionist conditions... 14

Figure 2.3

Coalitional influence on political decision-making and the

policy choice...

Figure 2.4

Political influence and the economic policy choice... 24

Figure 3.1

Political patronage and economic growth... 27

Figure 3.2

Economic segmentation under early AFTA conditions... 38

List of Appendixes

Appendix 1.1 Growth of GDP of the ASEAN Three economies from 1985 to

1997...

136

Appendix 1.2 Flow of world-FDI to ASEAN-10 and China from 1985 to

1997...

136

Appendix 2

The Indonesian business elite, their political connection and

their economic treatment...

137

Appendix 3

The Malaysian business elite, their political connection and

their economic treatment...

141

Appendix 4

The Thai business elite, their political connection and their

economic treatment...

146

List of Abbreviations

AEM

ASEAN Economic Ministers

AEMM

ASEAN Economic Ministers Meeting

AFAS

ASEAN Framework Agreement on Services

AFTA

ASEAN Free Trade Area

AIA

ASEAN Investment Area

AIC

ASEAN Industrial Complementation Scheme

AIJV

ASEAN Industrial Joint Venture Scheme

AIP

ASEAN Industrial Projects Scheme

AMM

ASEAN Ministerial Meeting

ASEAN

Association of Southeast Asian Nations

ASEAN Three Indonesia, Malaysia, and Thailand

ASEAN-5

the founding members of ASEAN, i.e. ASEAN Three plus Singapore

and the Philippines

ATI

Association of Thai Industries

BBC

the Brand-to-Brand Scheme

BOI

Board of Investment

Bulog

Badan Urusan Logistik

CAFTA

China-ASEAN Free Trade Area

CBU Completely

build

CEPT Scheme Common Effective Preferential Tariffs Scheme

CKD Completely

knocked

down

EAEC

East Asian Economic Caucus

EPU

Economic Planning Unit

FT Fast

Track

GEL

General Exception List

HICOM

Heavy Industries Corporation of Malaysia

hSL

highly Sensitive List

INL Inclusion

List

JPPCC

Private Sector Consultative Committee

MCA

Malaysian Chinese Association

MIC

Malaysian Indian Congress

MIDA

Malaysian Industrial Development Authority

MITI

Ministry of International Trade and Industry (Malaysia)

MNE Mulinational

enterprise

MoF

Ministry of Finance

MTUC

Malaysian Trades Union Congress

NDP

New Development Policy

NEP

New Economic Policy

(continued on next page)

vii

NESDB

National Economic and Social Development Board

NIC

Newly Industrializing Country

NT Normal

Track

NTB non-tariff

barrier

PTA Preferential

Trade

Arrangement

QR quantitative

and

qualitative restrictions

Sensitive List

SME

small and medium enterprises

TEL

Temporary Exclusion List

TNE Transnational

enterprise

UMNO

United Malays National Organization

VAT Value-added

tax

1. Introduction

Until the 1990s, the Association of Southeast Asian Nations (ASEAN) had a

long, however unsuccessful tradition of promoting regional economic development

through inter-governmental cooperation.

This changed in 1992 with the foundation

of the ASEAN Free Trade Area (AFTA), which is regarded as ASEAN's first serious

step towards regional economic integration.

AFTA's aim is to abolish trade barriers among the participating countries, be

it tariffs or non-tariff barriers. The member countries are therefore required to

liberalize their economies through adjustments of their domestic tariff systems and

through the elimination of non-tariff barriers (NTBs). The formerly high degrees of

economic protection have to be gradually reduced and ultimately abolished

completely measures, that the ASEAN member states were long unwilling to

implement. Hence, ASEAN's decision to found AFTA in 1992 was very sceptically

perceived by the international community.

Indeed, the development of AFTA displays two contrary characteristics. On

the one hand, the ASEAN members decided to accelerate the implementation of

AFTA by five years and complemented it with two additional programmes, the

ASEAN Investment Area (AIA) and the ASEAN Framework Agreement on Services

(AFAS).

On the other hand, the institutional design of AFTA provides the member

countries with a high degree of flexibility to prolong or delay the process of

implementation and re-negotiate commitments already made.

Two conclusions can be drawn from the above stated developments: On the

hand, the signing of the AFTA framework in 1992 clearly indicates a major shift in

the member states' attitude towards regional economic integration. Moreover, the

initially quick implementation of the original agreement, as well as its acceleration

by five years and the inclusion of those potentially contentious issue areas namely

trade in unprocessed agricultural products and in services which the member

countries had excluded from the original AFTA framework, underline this shifting

attitude towards regional economic integration. On the other hand, some member

states delayed the implementation of tariff reductions and the negotiation of sensitive

Cf. Lim: 2004: pp. 200-204.

Hund: 2003: 139. The difference between economic cooperation and economic integration are

explained in Chapter 2.1.

Cf. Nadal de Simone: 1996: pp. 113-116; Tan: 1996: pp. 162-169.

The AFTA and the AFTA Plus programmes are dealt with at greater length in Chapter 3.2.

Cf. Nesadurai: 2003: p. 29.

products, indicating that they were not equally committed to the process of

implementation.

These conclusions lead to the two research questions that this thesis answers:

Firstly, why did the Southeast Asian states change their preferences towards

regional economic integration and founded AFTA? Secondly, why was AFTA

institutionalized in a way, that allowed frequent delays and re-negotiations of its

implementation?

To answer these questions, the argumentation of this thesis is grounded on a

basic assumption: The foundation and implementation of AFTA was, to a large

extent, determined by the economic interests of politically dominant domestic

actors.

This is not to say, that political decision-making is solely dictated by the

demands of powerful domestic constituencies. Nevertheless, important is, that the

degree of domestic support, which politicians enjoy and on which their domestic

political legitimacy is grounded, depends on the extent to which they are able to

satisfy the domestic demands.

To understand the assumption, which underlies the analytical part of this

thesis, it is crucial to consider, that, for reasons outlined in Chapter 2.1, regional

economic integration through trade liberalization diametrically affects the business

interests of different domestic actors. This is even more true for the Southeast Asian

countries, which had long been adopting a distributive and protective approach

towards economic development. This approach can no longer hold under conditions

of trade liberalization. Tensions between economic growth and domestic distribution,

that policymakers are confronted with, are likely to shape their preferences towards

regional economic integration.

Simply put, trade liberalization will create `winners

and losers'. Domestic power struggles for, or against, regional economic integration

are likely to occur.

1.1. Background to and significance of this research

According to Moravcsik, societal interests and institutions have a

fundamental impact on state behaviour in world politics, by shaping state

Cf. Moravcsik: 1997: p. 1.

Cf. Nesadurai: 2002: p. 6.

Ibid.

preferences.

Hence, "domestic politics do matter"

to regional economic

integration. While abundant literature deals with Southeast Asian regional economic

integration from mere outside-in perspectives

, inside-out approaches, which try to

identify domestic incentives for or against integration, however, are according to

Rüland and Jayasuriya, rare and seldom applied to explain the ASEAN members'

changing state preferences towards regional economic integration.

The existence of this gap in the literature on ASEAN regional economic

integration is peculiar for, at least, three reasons: First of all, since the theories of

international relations overcame the predominance of realist assumptions, a variety

of scientifically acknowledged theoretical approaches has emerged, appropriate for

analysing the influence of underlying domestic pressures on intra-regional

cooperation.

Among the most prominent certainly is Putnam's very influential

essay "Two-level games".

Secondly, a good deal of research on the political economy of the Southeast

Asian tiger states has already been conducted. The more than two hundred pages

thick World Bank report The East Asian Miracle: Economic Growth and Public

Policy of 1993, which analyses domestic economic policies as the main cause of

the Asian miracle of the early to mid-1990s, has especially inspired an immeasurable

amount of literature on the Southeast Asian economic development. Yet, this

literature does usually not lay much emphasis on the examination of domestic

influences on the foundation and implementation of AFTA.

Cf. Moravcsik: 1997: p. 1.

Milner, Helen: 1997: p. 3.

The so-called outside-in approaches are based on the arguments of institutionalism, constructivism,

or realism.

Cf. Jayasuriya: 2001: p. 2; Rüland: 2002: p. 5.

Cf. Putnam: 1988: p. 427-451: Early works on the role of domestic actors in influencing state

politics stem from Karl Deutsch and Ernst Haas. Structuralist approaches, such as those conducted by

Graham Allison, Peter Katzenstein and Stephen Krasner, focus on state capacity and examine political

institutions through which domestic interests are aggregated, represented, and reflected in foreign

policy choices. Independently, these authors conclude that political decision-makers are highly

concerned with both domestic and international pressures.

Putnam perceives international bargaining

as a two-level game in which domestic politics and international relations have reciprocal influences.

Hence, the analysis of two-level games requires a decomposition of the bargaining process into two

distinctive stages the domestic and the international level. Domestic interests and actors are crucial

for determining the outcome of international bargaining.

Ibid.: Putnam perceives international bargaining as a two-level game in which domestic politics and

international relations have reciprocal influences. Hence, the analysis of two-level games requires a

decomposition of the bargaining process into two distinctive stages the domestic and the

international level. Domestic interests and actors are crucial for determining the outcome of

international bargaining.

Thirdly, basically neo-liberal institutionalist or constructivist approaches have

been applied to ASEAN regional economic integration.

Here, research is focused

on institution-building

and underlying common identities

. When applying these

approaches to the framework of AFTA, institutional deficiencies are frequently

identified as the major obstacles to regional economic integration.

Despite this,

regional economic integration among the ASEAN member states does happen.

Hence, these approaches, which are not applicable when considering the interests of

economic actors as a possible explanatory framework for changing state preferences,

seem not to be able to explain regional economic integration among the ASEAN

member states.

The key concern of this paper is therefore to provide an alternative

explanation by opening the black box of international politics and draw the reader's

attention to the domestic interests underpinning and shaping state preferences

towards regional economic integration, here represented by AFTA. According to the

literature, which was available to conduct this research, a systematic analysis

focusing on the influence of domestic interests on ASEAN regional economic

integration has not been undertaken prior to this attempt. This thesis therefore

contributes important insights into the domestic politics of the ASEAN member

states with regard to regional economic integration to the existing literature.

1.2. Research

design

and existing literature

In Southeast Asia, as in contrast to Europe, domestic interests cannot

influence the regional level directly. Instead, domestic actors are required to exert

Cf. Hund: 2003; Rüland: 2002: p. 5.

Cf. Rüland: 2002: p. 7: Institutionalization is the process of establishing a common overarching

infrastructure which serves to coordinate meetings such as a secretariat. Regionalism identifies two

different types of institutionalization: hard institution-building based on rules-based mechanisms and

high governance costs, while soft institutionalization creates shallow dialogue and cooperative fora, in

which the nation-state prevails the dominant actor and in which governance costs are low due to the

lack of common institutions.

Cf. Hund 2003: pp. 29-30; Rüland: 2002: p. 8: Constructivists argue that regionalism stimulates

collective identity-building by shaping "differences between self and other" and contributing to the

cohesion of a group.

In this regard, constructivists argue that theses institutional weaknesses originate from ASEAN's

collective norms, which do not seem to be capable of effectively promoting deeper regional economic

integration. Cf. Hund 2003: pp. 29-30; 136: ASEAN`s traditional collective norms are: absolute

national sovereignty and the principle of non-interference, voluntary cooperation, informality,

decentralized consensus-based decision-making on the smallest common denominator and non-

confrontation. These norms served well until 1997 and provided political stability to the region.

Cf. Solingen: 1998: p. 6.

influence on the respective governments, which function as mediators between

domestic and regional politics. Consequently, the analysis of domestic politics is

crucial for understanding regional outcomes. Inspired by MacIntyre's "The Power of

Institutions"

and Solingen's "Regional Orders at Century's Dawn Global and

Domestic Influences on Grand Strategy"

the analysis is focused on the domestic

level, on which it primarily identifies domestic interests, the institutions through

which interests are aggregated, and to what extent these ultimately influence

governments in order to shape regional economic integration analogous to their

interests. The great advantage of a combination of these two approaches is, that it is

able to reflect the interplay of a variety of economic and state actors and that it

"...offers an analytical pivot that allows the simultaneous consideration of

international and domestic political and economic aspects of a grand strategy [i.e.

state preferences]."

A coalitional approach facilitates the handling of a variety of different actors

and their underlying interests and, as demonstrated in the fourth Chapter, reduces the

complexity of analysis significantly. Institutional aspects are necessary for

identifying the degree of relative political influence of different actors, which finally

determine the extent, to which a respective coalition can exert political influence on

the decision-making process. This combination suits the Southeast Asian situation, in

which inter-elite coalitions play a crucial role in domestic struggles for, or against,

regional economic integration.

For combining coalitional-structuralist approaches, this study can be situated

within a much wider area of academic research concerned with rational choice

theories. Among the more prominent works are clearly Milner's "Interests,

Institutions, and Information: Domestic Politics and International Relations"

and

Aggarwal and Fogarty's very recent work "Between Regionalism and Globalism:

European Union Interregional Trade Strategies"

. Yet in general, these approaches

deal with European or "Western" concepts and are not directly applicable to a

Southeast Asian context. Yet, the goal of this thesis is to combine a deductive

approach with convincing empirical information within a framework, which suits the

special Southeast Asian context. Consequently, the information, on which this

Cf. MacIntyre: 2003.

Cf. Solingen: 1998.

Op.cit.: p. 8.

Cf. Milner: 1997.

Cf. Aggarwal and Fogarty: 2004.

research is grounded, necessarily covers a wide range of alternative works on

Southeast Asia.

The existing literature relevant for this research can, thus, be classified into

theoretical and empirical approaches. Apart from the theoretical approaches

introduced above, a theoretical focus is firstly put on economic sciences, in order to

define and explain economic interests. These include among others Balassa, Bender,

Buschmann and Skala.

A second group of theoretical approaches focus on

structuralist-institutionalist arguments, which identify underlying institutions and

socio-political structures as relevant for domestic influence. These include: Crone

and Doner, who focus on the state capacity of the Southeast Asian states, and more

recently, Bishop and Neumann, who contribute to the understanding of Southeast

Asian patronage and elite relationships.

Three kinds of empirical studies are employed for the analytical part of this

research. The first part analyses the domestic politics of the respective countries and

provides necessary information on the relevant economic and political actors. The

most important authors are introduced in Paragraph 1.4. In order to identify the

economic interests of the respective actors, as outlined in Chapter 2.2, the second

part comprises econometric studies, which survey the relative competitiveness of the

different economic sectors. Emphasis is put on the manufacturing and agribusiness

industries and on the services providers of the respective countries, which are most

relevant with regard to the free trade commitment of AFTA. These surveys, however,

are very scarce and do neither comprise all relevant economic sectors, nor do they

give hints about political influence of economic actors. Consequently, to a certain

extent, the analysis is based on assumptions. A third part covers both WTO and

AFTA documents, which provide evidence on economic political decision-making of

the respective countries and give data on how different products are treated under the

AFTA-framework (compare Chapter 3.2.3.1.). In this regard, a study conducted by

Bowie and Unger

adds valuable information about underlying interests and

economic policy choices of selected ASEAN countries.

Cf. Balassa: 1961; Bender: 2003; Buschmann: 1991; and Skala: 2003.

Cf. Bishop: 2003; Crone: 1995; Doner: 1991; and Neumann: 2002.

Cf. Bowie and Unger: 1997.

1.3. Scope and applicability of research

Though acknowledging that incentives other than economic ones might also

serve as explanations for changing state preferences of the ASEAN members towards

regional economic integration

, this analysis is focused on a monocausal approach.

Thus, in order to reduce the complexity of this thesis, only the economic interests of

domestically important actors

and their relative influence on central decision-

making will be considered. International economic developments will only be

considered to an extent which is necessary to explain the economic interests of the

respective actors.

As the thesis attempts to find out, why AFTA was founded, and argues, that

its foundation was a logic consequence deriving from previous adjustments of the

trade regimes of the respective countries, the scope of analysis covers a five-year,

pre-founding period of AFTA, which correlates with a period of economic recovery

starting in 1985, and its foundation phase and early implementation, which covers

the period 1991 to 1995 and correlates with the economic boom phase.

The focus of analysis is limited to Indonesia, Malaysia and Thailand,

henceforth ASEAN Three, for the following reasons: Firstly, the group of ASEAN

Three comprises those founding members of AFTA, which have played a crucial role

during its founding phase (compare Chapter 3.2.2.). Furthermore, the studied

countries have experienced two similar eras of economic development. Ranging from

the 1960s to the early 1980s the first period was marked by import-

substitutionalisation. The second export-oriented period was initiated in the early to

mid-1980s, and finally paved the way for the foundation of AFTA (compare Chapter

3.1.). Additionally, these three countries are politically comparable to a very high

degree. Symptomatic for the ASEAN Three states is the omnipresence of patron-

client relations, which exert strong influence on political decision-making organs and

therefore erode state capacities (compare Chapters 3.1 and 4.2).

Actually, Brunei, the Philippines, and Singapore are also founding members

of AFTA, but they are excluded from further considerations. This can be justified by

the fact, that with regard to Brunei, relevant information is very scarce. Additionally,

the sultanate does not play a very important role within the ASEAN forum.

Cf. Tan: 1996: pp. 162-169: During the 1980s and 1990s ASEAN politics often seemed to respond

to changes of the international environment. In this regard, the academic debate contributes AFTA's

foundation to a balancing strategy of the ASEAN member countries towards the emerging regional

trade blocs in Europe and North America.

Chapter two will demonstrate that these `domestically important actors' refer to both the domestic

business and politico-bureaucratic elites and foreign investors.

Singapore, in contrast, is, as the economically most advanced country of the

region, of crucial importance for the AFTA process. Yet, the city state is

internationally regarded as one of the economically most liberalized countries in the

world

and displays high levels of state capacity

. Hence, domestic struggles pro or

contra regional economic integration are unlikely to be observed.

The Philippines, in contrast, is characterized by the same political and

economic structures as the ASEAN Three countries and was initially supposed to be

included in the analysis. After extensive research, however, it became evident, that

the Philippines did not play an active role in the founding process of AFTA. Instead,

it showed a more opportunistic, almost band-wagoning like behaviour towards

joining the free trade area.

Moreover, economically the Philippines is not very

comparable to the ASEAN Three, because during the observed time span it could

achieve a slight economic recovery with average growth rates of annually three per

cent only, which is rather poor compared to annually eight to nine per cent in the

case of the other three countries.

Most significantly however, it became apparent,

that, albeit domestic power struggles between different coalitions were conducted in

a very forceful way

, market liberalization did not take place, because a liberal-

oriented coalition was able to overcome protectionist pressures. Instead, external

factors resulted in a major change of the Philippines preferences towards joining

AFTA. First of all, international lending organizations, most prominently the World

Bank and the IMF, threatened to freeze funds, that were granted to the government, if

it was not willing to adopt policy reforms promoting economic openness.

Secondly,

in 1991, the treaties with the USA on the two U.S. military bases were not prolonged.

This significantly reduced the inflow of urgently needed foreign capital into the

Philippine economy and most importantly into the pockets of the Philippine

oligarchy, at a time, when the economy contracted by nine per cent.

New sources

for income generation had to be found. Thirdly, impressed by the economic

achievements of their neighbour countries, under Aquino's successor Ramos, the

Cf. Südostasien Aktuell: January 1999:p. 17.

Cf. Mackie: 1988: pp. 295; 321-323.

Cf. Leifer: 1996: p. 29; Schmidt: 2001: p. 21.

Cf. Saldana: 2001: p. 158.

Though initially aiming at reforming the country economically and politically the Philippine

President Aquino could not overcome the power of the oligarchic elite. Politics during her time in

office, that is between 1986 and 1991, were thus punctuated by a succession of coup attempts,

culminating in a large, bloody, and well-financed attempt in December 1989, which gave Aquino no

political space to target any reforms.

Cf. Bowie and Unger: 1997: p. 126; Diakono-Pascual: 2000: pp. 2-3.

Cf. Hutchcroft: 1996.

government finally opted for a gradual trade liberalization.

To summarize, these

external factors, especially the first two, were so dominant, that they had overlain the

economic interests of domestic actors and perpetuated trade liberalization since the

1990s. Therefore, coalition forming and domestic power struggles for political

predominance, on which the analysis is grounded, have been overshadowed.

Unfortunately, the theoretical framework, as outlined in Chapter two, is not able to

capture these external factors, which, in the case of the Philippines, functioned as

catalysts for trade liberalization.

The CLMV-countries

are excluded from analysis, because they were not

members of ASEAN and AFTA during the observed time span.

As such, the theoretical framework, on which this thesis is grounded, is

applicable to basically all cases, in which countries, for a variety of reasons, want to

overcome protectionism and form regional economic integration schemes. With

regard to Southeast Asia, the theoretical approach and the empirical findings can be

extended, to include the more recent developments of regional economic integration.

It is applicable to the analysis of the enlargement of AFTA by the CLMV-countries

as well as by additional programmes. Moreover, in East Asia, the 21

century has

witnessed the emergence of cross-regional free trade arrangements, such as the

recently founded China-ASEAN Free Trade Area (CAFTA) and the linking of AFTA

with Australia and New Zealand. The ASEAN-member states' positions can be

analysed by this framework as well.

Apart from the very broad applicability of this approach, it, nevertheless,

faces some limitations. First of all, it is not able to deal with major external factors,

which overshadow domestic coalition forming and political power struggles, as

already demonstrated in the case of the Philippines. Whenever countries are

predominantly dependent on foreign lending agencies, which strongly interfere in

political decision-making, economic adjustments, as adopted by the governments,

cannot be analysed with this approach. Moreover, during the early period of regional

economic integration, in which democratic participation of the major parts of the

ASEAN Three societies in economic decision-making was rather marginal, their

interests could be easily excluded from further consideration. With proceeding

Ibid.

CLMV refers to ASEAN's newcomers Cambodia, Laos, Myanmar, and Vietnam.

democratisation, however, these interests need to be considered as well. This would

increase the scope of research drastically.

1.4. Research

method

The method applied to answer the research questions is based on a qualitative

research, surveying secondary literature.

Given a Southeast Asian business context, which is characterized by

patronage relationships (compare Chapters 2.2.2.1. and 3.1.), the identification of

politico-business connections is most important for determining political influence,

which in this study is assumed to play a crucial role for the foundation and

implementation of AFTA. Therefore, the analysis, provided in the fourth chapter,

relies on a wide range of secondary literature, which uncovers the relationships

between the major business groups of the respective countries and high ranking

politicians. The most important works are enlisted as follows: The analysis of

Indonesian politico-business connections and economic interests is based on books

written and/or published by Basri and Hill, Emmerson, Case, MacIntyre, Soesastro

and Basri, and Winters.

In the case of Malaysia, the analysis is based on various

works written by Case, Gomez, and Jomo.

Most of the valuable information on

Thailand derives from a range of books written by Laothamatas, Pasuk, and Baker.

These literary works have been scanned in order to find any hints about

business-politico connections. As `politically connected' can be regarded any

business actors, who entertain close be it friendship or business-dominated

relationships to government officials and high-ranking bureaucrats. These are those

business actors, who are able to exert high degrees of political influence on

governments. Moreover, as a direct influence of economic actors on the AFTA

process cannot be proven, domestic economic policies will be compared with the

foundation and implementation of AFTA. Based on the observations, that in

Southeast Asia economic actors can influence domestic legislation, but cannot

directly affect regional economic integration, this comparison serves as a substitute

for direct influence on the regional level. Depending on the data available, the

Cf. Basri and Hill: 2004; Emmerson: 1999; Case: 2002; MacIntyre: 1992; Soesastro and Basri:

2005; and Winters: 1996

Cf. Case: 2003; Gomez: 2005; Gomez and Jomo: 1997; Jomo et al.: 1997.

Cf. Laothamatas: 1988; Pasuk: 1992 and 1994; Pasuk and Baker: 1998 and 2000.

Appendixes two to four list the biggest 33-90 business conglomerates of the

respective countries, their political connectedness, the sectors in which they have

their main businesses, their degree of competitiveness and export-import-orientation

whenever available , government-induced protectionist measures if applicable ,

and their treatment under AFTA.

Using the analyses of the authors enumerated above, to identify political

connections and the influence of businesses on policy-making in a way that either

promotes or opposes economic liberalization, has two limitations: Firstly, the authors

do not claim to include every business-political connection, that might be relevant.

Consequently, these lists cannot claim to include all relevant business-political

connections. This weakness, however is not too problematic, because these authors

focus on those companies with the strongest political linkages. This focus is

consistent with the approach of this thesis, namely to identify the economic interests

of politically relevant actors. Secondly, throughout the observed time-span,

ownership changes occurred quite regularly and the companies shifted their focus of

operation to different sectors.

These complex shifts cannot be entirely reflected by

the Appendixes. Again, this limitation is not truly troublesome, because ownership

changes were likely to remain within the politico-business elites, and if shifts in

economic activity of the respective companies occurred, these displayed a common

pattern, that is from manufacturing to services. Consequently, the lists can be

regarded as representative for the most important business-political connections and

for business influence on political decision-making with regard to shaping AFTA.

In any case, it cannot be claimed, that this thesis has taken a random sample

of companies, of their official relations, and of economic policy choices, as every

effort has been made to select important state-owned, and private both foreign- and

domestic-owned companies, key policies and main patterns of foreign investment

to make the analysis as solid and convincing as possible.

1.5. Content

outline

Chapter two will provide a theoretical basis for this analysis. After briefly

explaining the theoretical effects, which trade liberalization has on formerly

protected markets, it will introduce the most important concepts, `economic

Compare, for instance, Gomez and Jomo: 1997.

interests', `coalitions', `political institutions', `political influence' and `state

capacity', which determine the independent, intervening, and dependent variables.

Chapter three has a twofold focus, which serves to offer the reader first

insights into the early economic development of the ASEAN Three countries on the

one hand, and then switch to the promotion of economic cooperation and integration,

which culminated in the foundation of AFTA on the other hand. Throughout the first

part of this chapter, patronage will be introduced as the predominant socio-political

institution, which underlies all social relationships of the studied countries and which

is crucial for determining political influence. Further, the relevant politico-economic

elites, whose interests shape the economic development of the respective countries

will be introduced on a country-to-country basis. This introduction is necessary for

two reasons: first, to understand the importance of AFTA as a turning point in

regional economic integration, second, to understand coalitional power struggles

observable during the founding and implementation phase of AFTA.

Chapter four, finally, comprises the analytical part of this thesis. The analysis

is focused on identifying the economic interests of the relevant actors. It combines

the coalitional approach, which will significantly reduce the complexity of a variety

of diverging economic interests, that are expressed by different state and business

actors, with the institutional approach, which serves to determine the degrees of

relative political influence of the various actors and, consequently, that of each

coalition. Power struggles over political predominance will become apparent. In this

regard, Chapter 4.1. will elaborate on the crucial importance of foreign direct

investment (FDI) and the changing economic interests of foreign investors. It will

highlight the role, which foreign investors played, for the foundation of AFTA.

Chapter 4.2. will proceed to examine country-specific factors of the three countries

respectively. Here, detailed information about the business and bureaucratic interests

and their respective degrees of political influence on shaping economic decision-

making with regard to trade liberalization will be provided in a country-to-country

study. Correlations between domestic policies and the foundation and

institutionalization of AFTA will become apparent.

Chapter five, finally, summarizes the arguments of the previous chapters and

demonstrates, that the foundation of AFTA was preceded by political pressures of the

internationalist coalitions of the three countries, and that its institutional design

served as a compromise between nationalist and internationalist coalitions. In

addition, Chapter five will assess the usefulness of the applied theoretical framework.

2. Theoretical Framework

Since the thesis is aimed at analysing the influence of domestic interests on

ASEAN decision-makers with regard to regional economic integration here

represented by AFTA, it is necessary to understand, that economic integration is a

very controversially debated issue in economies, which were used to being highly

protected from import-competition. Therefore, before outlining the theoretical

framework, it is useful to demonstrate, which theoretical effects regional economic

integration has on formerly protected markets.

2.1. Regional Economic Integration in Theory

Economic sciences distinguish between economic cooperation and

integration. Economic cooperation refers to the voluntary participation in selective

economic areas only, which Hund calls "inter-governmental minimalism".

Partaking countries exit the cooperation agreement whenever trade negotiations seem

to disproportionately affect their economies. Regional economic integration, in

contrast, can be defined as the political integration of countries belonging to the same

region, by implementing group-specific institutions, which govern group-behaviour

and by allowing trade concessions, which positively influence intra-regional

economic transactions.

Theoretically, regional economic integration aims at establishing a regional

trade regime, which reflects the characteristics of free trade as genuinely as possible.

The economic sciences distinguish between tradable and non-tradable sectors. Under

free trade conditions most of the products and services of a respective economy can

be and are traded. Only a very limited number of goods and services, such as

construction and infrastructure, are not traded, not because they are protected from

trade, but because they are immobile. That means that, under free trade conditions, a

segmentation of the economy into tradable and non-tradable sector would

approximately look like this:

Figure 2.1

Economic segmentation under free trade conditions

Tradable sector

Non-tradable

sector

Source: Author

Hund: 2003: p. 39.

Cf. Skala: 2003: p. 61.

True free trade, however, does not occur in reality. Instead, markets

whether liberalized or protected are the outcomes of lobbyism, of economic

interests and often of ideological constraints. Consequently, the economy does no

longer display a natural segmentation into tradable and non-tradable sector, in

accordance to the mobility of goods and services, but is segmented into a

competitive, tradable sector and an uncompetitive non-tradable sector.

That means,

that uncompetitive domestic producers are artificially protected from foreign

competition, although their products are mobile and could be traded. It is therefore

more appropriate to substitute the terms tradable and non-tradable with liberalized

and protected, as the latter two terms already suggest political manipulation.

Depending on the degree of manipulation, any deviation from the ideal-type

proportion between the two sectors is possible. With regard to the ASEAN Three

countries' high level of protectionism at the beginning of the 1980s, the above

displayed market segmentation might have approximately looked like this:

Figure 2.2

Economic segmentation under protectionist conditions

Liberalized

sector

Protected sector

Source: Author

In this regard, regional economic integration schemes aim at expanding the

scope of the liberalized sector until it comes close to the ideal-type proportion

outlined in figure 2.1. Various stages of regional economic integration can be

distinguished according to their degree of institutionalization: the preferential trade

arrangement, the free trade area, the tariff union, the common market and the

economic union.

In this regard, the ASEAN Free Trade Area represents a low grade of

economic integration. Its aim is to abolish trade barriers among the participating

countries, be it tariffs or non-tariff barriers. The member countries are therefore

required to gradually liberalize their economies through adjustments of their

domestic tariff systems. Each political movement towards liberalization, however,

intensifies trade competition. Those more competitive businesses will benefit from

competition, while intensified competition endangers the economic interests of those

less competitive companies, which were once protected by trade barriers. Under

Cf. Bowie and Unger: 1997: p. 1; Jayasuriya: 2001: p. 3.

Cf. Balassa: 1961; Buschmann: 1991. p. 10

these circumstances regional economic integration will create `winners and losers'

among the domestic businesses.

2.2. Interests,

coalitions,

and

political influence in theory

Central to this thesis is the assumption, that the foundation and

implementation of AFTA was, to a large extent, determined by the economic

interests of politically dominant economic actors. The following paragraphs will

therefore, firstly identify the interests of domestic and transnational economic actors,

the coalitions which these actors form, and secondly, the socio-political institutions

through which interests are politically represented. Thirdly, these findings will be

combined to examine the influence of domestic and transnational economic actors on

the central decision-making organs, which will subsequently translate the most

influential interests into economic policies. These economic policies will then be

compared with the AFTA process and serve as a substitute of direct political

influence of domestic actors on regional economic integration. In this regard, much

emphasis is laid on domestic economic policy-making.

2.2.1.

Economic interests and coalition-forming

Patzelt defines interest as

"[v]erhaltensorientiertes Ziel oder Bedürfnis von einzelnen oder Gruppen im

sozialen Umfeld. [...]. Interessen sind Verhaltensdispositionen; sie sind Ziele oder

Bedürfnisse, aus einer Sache echten oder vermeintlichen Nutzen zu ziehen; und sie

sind Reaktionen eines Akteurs auf Gegebenheiten eines sozialen Umfelds"

In this context, interest will exclusively refer to the economic interests of

domestically relevant actors. These are domestic business and politico-bureaucratic

actors and foreign investors.

Cf. Bender: 2003: pp. 475 560: According to classic and neo-classic economic theories, trade

liberalization generates trade creation and trade diversion effects in all partaking economies. Trade

creation is generally regarded as a positive effect. All economies participating in economic

cooperation schemes can benefit from trade, as they can obtain those categories of goods, which they

are not able to produce themselves effectively. Trade diversion means, that under free trade conditions

the less competitive producers, that is those who produce at high costs, suffer from cheaper

competitors, as the latter redirect consumption from the more expensive products to their own cheaper

substitutes. This negative side-effect of trade liberalization is usually put forward to justify economic

protectionism.

Patzelt: 2001: p. 505.

However, according to Sullivan "business is not a monolith".

Indeed, a wide

range of economic interests can be attributed to various parts of the business

community of the ASEAN member states. One basic cleavage separates the interests

of domestic, usually import-competing businesses from those of foreign-owned,

predominantly export-competitive companies. Whereas the former can increase their

profits under import-substituting and protectionist conditions, the latter promote

trade liberalization. A second difference can be made between state-owned

enterprises and privately-run businesses. As state-owned enterprises often lack the

required levels of competitiveness, they are more likely to benefit from trade

protection and state subsidies. In contrast, privately-owned companies are more

likely to derive their competitiveness from managerial skills rather than from state

intervention. Hence, they are more likely to favour trade liberalization. With regard

to Southeast Asia, a third divide must also be considered. Due to the persistence of

patronage systems and clientelistic structures, a narrow, politically well-connected

business elite is able to exert a high level of influence on economic policy choices

and to lobby for particularistic protection, while other economic actors are widely

excluded from political participation.

The economic interests of business actors are not fixed permanently. Instead,

their interests alter according to changes in the overall economy, trends in domestic

and international markets, as well as in response to political decisions. Chapter three

will demonstrate that the ASEAN Three countries experienced major shifts of their

respective economic and political environments during the early to mid-1980s, which

as will be discussed in detail in the chapters three and four have resulted in

greater trade liberalization. Consequently, the business actors were required to

respond to these economic changes. In this regard, the economic actors displayed

three different reactions: They either supported regional economic integration, in the

case that they were positively affected; they opposed regional economic integration,

in the case that they were negatively affected; or they withdrew their economic

activities from those sectors, in which the business environment was no longer

favourable, and shifted them to production sites, which were more promising.

Especially those foreign investors as well as domestic owners of mobile capital can

exert high levels of influence on political decision-making as they can threaten to

Sullivan: 2002: p. 1.

Op.cit.: pp. 1-3.

divest their capital.

With regard to Southeast Asia, Chapter 4.2 will demonstrate,

that all three reactions could be observed.

For the politically well-connected business elites of the Southeast Asian

countries political participation is easy to achieve, as patronage provides them with

the opportunity to establish very personal and direct relationships to politicians.

Singular influence, however, might not be enough to determine the outcome of

economic policies. Then, coalition-building is a ready strategy to promote or delay

reform.

In this regard, Solingen defines coalitions as

"... policy networks spanning state and private political actors". [...] "Actors join

forces in coalitions when their interests converge and tradeoffs are attractive, in

order to safeguard those interests against alternative coalitions"

According to economic interests, Solingen distinguishes between two ideal-

type coalitions: the competitive and internationally-oriented coalition further

addressed as internationalists which will predominantly benefit from regional

economic integration and the less competitive inward-oriented coalitions further

called nationalists whose economic profits will be threatened.

Especially in

transitional economies, such as those of the ASEAN Three countries, Chapter 4.2.

demonstrates, that the business sectors are divided along the lines discussed above.

2.2.1.1.

The internationalist coalition

An internationalist coalition comprises those economic actors, be it private or

state agents, who for various reasons promote economic reforms towards trade

liberalization. One can assume, that an internationalist coalition will, thus, include

owners, both domestic and foreign, of competitive, export-oriented assets, especially

those, who are interested in entering world markets and are dependent on imports, or

who are already involved in foreign trade. Chapter three will outline the importance

of foreign direct investment (FDI) for the Southeast Asian countries to achieve

economic growth. Consequently, FDI can be regarded as vitally important for

domestic interests. The state agencies, which promote trade liberalization will be

further called technocrats.

Cf. Solingen: 1998: pp. 24-25; Winters: 1996: p. 42.

Cf. Sullivan: 2002: pp. 2-4.

Solingen: 1998: p. 9 and p. 11, respectively.

Op.cit.: p. 3

2.2.1.2. The

nationalist

coalition

A nationalist coalition comprises those both private and state actors, who

"(...) have an inherent affinity with import-substituting models of industrialization

and classical populist programmes involving a strong, active government (...)",

which makes them "(...) perceive regional cooperative outcomes as weakening

(...)".

Nationalist coalitions are likely to include producers of import-competing products

and services, and state-owned enterprises.

Generally, a particularly strong

opposition to trade liberalization can be expected to be put forward by the

government-owned enterprises. In patronage systems these will find strong support

by those business elites, which entertain close business relations with the

government.

The state agencies, which oppose trade liberalization are further

addressed as nationalist conservatives. They are strongest as long as they can gather

necessary financial resources to maintain their policies of protectionism.

Table 2.1 summarises the above-mentioned estimates about the interests of

domestic actors and their assumed coalition membership.

Table 2.1

Interests, coalition-forming and political influence in theory

Coalition

Actor

Interests

Nationalist Internationalist

Export-oriented businesses

Trade liberalization

exclusively

Foreign investors

Trade liberalization

exclusively

Technocrats

Trade liberalization

exclusively

Import-competing businesses Protection

exclusively

Conservatives

State intervention

exclusively

Source: Author

With regard to Southeast Asia, the existence of huge business conglomerates

render the analysis of business interests extremely difficult. In the possession of the

respective elite members, these conglomerates comprise networks of both

competitive and uncompetitive affiliates, operating in a range of various business

sectors. Accordingly, it is difficult to distinguish between those domestic actors,

favouring trade liberalization, and those, favouring protectionism. Instead,

conglomerates face a very complex set of interests to be addressed through economic

Solingen: 1998: pp. 32; 41.

Op.cit.: pp. 22; 24.

Cf. Sullivan: 2002: p. 3.

Solingen: 1998: p. 52.

policies.

Domestic actors support trade liberalization of their competitive export-

oriented enterprises, while insisting on protectionism of the uncompetitive firms.

other words, internationalist interests are combined with nationalist interests and

render a case-to-case analysis necessary. This is provided in Chapter 4.2.

2.2.2.

Political institutions, political influence and state capacity

According to Macintyre

"[i]nstitutions [emphasis added] are constraints that shape behaviour in all sorts of

areas of human activity, stretching from social interaction to economic exchange to

international cooperation."

Political institutions determine the manner, in which leadership is organized, state

authority exercised, and social interests aggregated and represented.

Hence,

political institutions are crucial for regulating social influence and for determining

the degree of state capacity.

Influence, in its broadest political sense, can be defined as the power of

certain social actors relative to that of other constituents to direct political decision-

making, in a way that is best suitable for their interests.

With regard to Southeast

Asia, the degree of political influence is determined by an actor's closeness to high

ranking politicians.

Political sciences subdivide state capacity into political and bureaucratic

capacity. Emmerson defines political capacity as "adaptability in problem solving"

This definition refers to a government's ability, competence, and cohesiveness to

formulate and implement policies isolated from particularistic influences, such as

rent-seeking demands

and lobbyism

, yet to maintain an adequate level of

embeddedness with society, to be able to further social goals and to make sure that

policy goals align with market capabilities. Bureaucratic capacity refers to the

competence and cohesiveness of the bureaucratic apparatus in planning the detailed

Cf. Solingen: 1998: p. 23.

Cf. Case: 2003: 3-5; and Jayasuriya: 2001: pp. 2-5.

Macintyre: 2003. p. 2.

Op.cit.: p. 1.

Cf. Solingen: 1998: p. 20.

Quoted in Crone: 1988: p. 55.

Cf. Gomez and Jomo: 1997: p. 6, who define rent-seeking "as ways of making profit (that is,

income) by undertaking activities which are directly unproductive; [as] for example direct political

activity, lobbying, and bribes [which] increase in markets where competition is artificially limited by

government."

Schubert and Klein: 2003: p. 181, define lobbyism as the act of interest groups or single actors to

influence political decision-making in a way, that best suits their interests. This influence can be

exerted by a variety of different means.

implementation of domestic policies.

With regard to those political systems, which

are typical for the ASEAN Three countries, political representation takes place in a

more socially exclusive way.

Moreover, in order to identify the respective actors' influence on political

decision-making, it is necessary to distinguish between informal and formal political

institutions, which both are relevant for understanding political influence. Informal

institutions refer to the political culture of Southeast Asian societies, which are based

on patronage systems and on the socio-political predominance of elites. Formal

institutions refer to the political systems of the respective countries. Given the rather

empirical character of institutions, patronage and elites will be dealt with at greater

length in Chapter 3.1. At this point, it is however, important to consider, that

patronage is not a pluralist system. The first consequence of the predominance of

patronage is that the government and its executive branches mainly pursue policies,

which suit the particularistic interests of the elites.

The second consequence is, that

the studied countries display relatively high levels of political insulation from public

pressure.

Subsequently, the bias of patronage systems narrows the research

drastically, as only the economic interests of the elites need to be examined.

The formal institutional architecture refers to the respective political systems

that is Thailand's parliamentary system, Malaysia's hegemonic one-party system

and Indonesia's authoritarian regime, which are dealt with at greater length in the

chapters 4.2.1. to 4.2.3.

As interest coalitions seek to influence political decision-

making, at this point, it is important to understand the legislative and executive ways

through which economic policies are passed and implemented, and at which points

political influence is possible.

2.2.3. The independent and the intervening variables

The economic interests of individual actors can change with economic

development. In order to maintain economic interests fixed, a coalitional approach

can be very usefully employed as a theoretical model, which can overcome the

Cf. Bishop: 2003: p. 71.

Cf. Case: 2002: p. 205.

For instance see Bello, Cunningham and Li (1998); McCargo (2002); Rigg (2003); Serrano and

Marasigan

(2004): Worker rights have been rigorously constrained, membership in and activism of

unions was long either prohibited or severely constrained. Farmers have no political influence,

protests if there were any were regulated through military intervention.

Cf. MacIntyre: 2003: pp. 43-49.

problematic of changing economic interests. Economic interests are simply

represented by the respective coalitions, within which membership is fluid. This

means, that as a whole the respective coalition represents certain type economic

interests, namely either those pro, or those contra trade liberalization. As soon as the

interests of individual actors change significantly, these actors will be counted to the

alternative coalition.

The economic interests of the nationalist coalition are treated as the

independent variable I, whereas the economic interests of the internationalist

coalition are fixed as the independent variable II.

Political institutions filter and mediate an "...array of contending interests

seeking policy satisfaction...".

They are crucial for determining the relative

influence of coalitions, for which political institutions can either function as a

catalyst or as a hindrance. Political institutions will therefore serve to operationalize

political influence.

Political institutions are consequently treated as the intervening variable.

This choice can be justified by the fact, that the analysis is subdivided into

short time intervals, which correlate with either government changes in the case of

Thailand or with major changes in the government's overall strategy towards

economic developments in the cases of Indonesia and Malaysia. Government

changes can have major implications for the representation of domestic interests,

especially in socio-political systems, like patronage, which stress the importance of

personal relationships. Whenever possible, these personal connections between

business actors and politicians will be uncovered and provide indicators for

measuring influence. The Appendixes two to four provide a very comprehensive

overview of the economic actors and their connections to high-ranking politicians.

Given the short time intervals, the probability of structural changes within the

relevant domestic political institutions can be reduced significantly.

MacIntyre: 2003: p. 51.

2.2.4.

The dependent variable

This thesis aims at analysing the influence of domestic interests on political

decision-making with regard to regional economic integration. Based on the

assumption, that regional economic integration is to a large extent determined by

domestic interests, political decision-making the aggregated economic interests of

the politically relevant actors. In this regard, the government serves as a mere

representative institution, which is

"(...) constantly subject to capture and recapture, construction and reconstruction by

coalitions of social actors"

Political institutions both formal and informal as outlined above constitute the

"critical transmission belt"

by which the interests of social actors are translated into

policies, which finally represent political decision-making.

Political decision-making with regard to regional economic integration, here

represented by AFTA, is therefore treated as the dependent variable.

Yet, `political decision-making' is not operable. This problem, however, can

be easily put aside. As already outlined in Chapter 2.1, regional economic integration

in the form of a free trade area requires the implementation on the domestic level

through economic policies, which adjust the domestic trade regime. That means, that

the domestic economy needs to be liberalized through economic policies on a

domestic level. Economic policies, which represent the outcome of political

decision-making are operable. It is relatively easy to judge economic policies on the

basis, whether they enhance or reduce the process of trade liberalization, and when

compared with the AFTA process, provide the necessary evidence, if and to what

extent domestic interests influence regional economic integration. Moreover, as a

direct influence of economically relevant actors on the AFTA process is not

observable, economic policies will be compared with the institutionalization of

AFTA. The correlation between domestic policies and the particular treatment of

certain items under the AFTA schedule, as introduced in more details in Chapter 3.2.

will then provide measurable data about the interference of domestic actors

Economic policy choice is employed as the operational variable for political

decision-making.

Moravcsik: 1997: pp. 517-518.

Op.cit.: p. 518.

2.3. Conclusion

Having introduced the effects of regional economic integration on domestic

interests, the interplay of domestic coalitions, and their relative influence on

decision-making, it is possible to identify the policy choices on a spectrum ranging

from absolute trade liberalization, that is a comprehensive scope of AFTA, at the one

end to protectionism, which equals a rather limited scope of AFTA, at the other end.

Figure 2.3 demonstrates the basic cleavage between the interests represented

by internationalist and nationalist coalitions for economic liberalization and

protectionism respectively. Depending on each coalition's degree of political

influence, the relatively stronger coalition will persuade the government to pursue

those policies out of a spectrum of various policy choices, ranging from trade

liberalization and protectionism, which best suits their interests. The government's

decision, to either pursue policies towards trade liberalization or towards

protectionism, will ultimately demonstrate a change of state preferences towards

regional economic integration.

Figure 2.3 C

oalitional i

fluence on political decision-making and the policy choice

Political decision-making organ

Degree of influence??? Degree of influence???

Internationalist coalition Nationalist coalition

??? Policy choice ???

Trade liberalization Protectionism

(comprehensive scope of AFTA) (limited scope of AFTA)

Legend: : political influence : spectrum of policy choices

Source: Author

With regard to the independent variables I and II, two hypotheses (H1 and

H2) can be put forward.

H1: Policy choices are unlikely to move in the direction of trade

liberalization, that is towards a comprehensive scope of AFTA, when the influence

of the nationalist coalition is stronger than that of the internationalist coalition.

H2: Policy choices are more likely to move in the direction of trade

liberalization, that is towards a comprehensive scope of AFTA, when the influence

of the internationalist coalition is stronger than that of the nationalist coalition.

Figure 2.4 displays the above-mentioned hypotheses and summarises the estimation

about the likeliness of policy choices aimed at trade liberalization given varying

degrees of influence of the two opposing coalitions. The situation is unambiguous,

when one coalition has the stronger influence than the other. However, stalemates

can occur, when no coalition is able to maintain the stronger influence on decision-

making. Under these circumstances, one possible reaction is to achieve a

compromise by dividing the spheres of influence on different economic sectors.

The crucial point, however, is that politicians often have to adopt balancing policy

choices, particularly when policy adjustments involve a shift from distributive aims

to economic growth.

Figure 2.4

Political influence and economic policy choices

Independent Variable II

Economic interests of

the internationalist coalition

Intervening

Variable

political influence

strong

weak

strong

Stalemate or

Compromise

Contra AFTA

Independent

Variable

Interests of the

nationalist coalition

weak

Pro AFTA

Indecisive,

no influence

Source: Author

What basically needs to be done in order to understand the dynamics of the

Southeast Asian regional economic integration, is first of all, to identify domestic

interests for or against trade liberalization/AFTA; second, to analyse the extent, to

which these interests influence political decision-making and policy outcome;

thirdly, to analyse the extent, to which economic policy choices aim at trade

liberalization or trade protection; and fourthly, as direct influence of economic actors

on AFTA as such is not observable, to compare domestic policy choices with the

foundation, institutional design and implementation process of AFTA. As this thesis

argues, that AFTA was preceded by adjustments of the respective trade regimes

towards trade liberalization, and can consequently be regarded as a logic

consequence of these adjustments, the analysis of domestic policies will also

comprise AFTA's pre-founding phase. This analysis is carried out in the fourth

chapter. The next chapter will introduce the reader to the economic development of

the ASEAN Three countries, which preceded the observed time span.

Cf. Solingen: 1998: pp. 53-54.

Policy

choice?

3. Economic development and regional economic integration

Chapter 2.1. has outlined, that markets are artificial products of political

manipulation. In Southeast Asia, economic policies have been manipulated by

patronage demands to a significant extent throughout approximately the last forty

years.

During this period the ASEAN Three economies have undergone two

different stages of economic development: import-substitution

followed by export-

promotion

. Moreover, the economic policies adopted by the ASEAN Three

governments have been more focused on distributive rather than on growth issues.

Economic interests are therefore likely to reflect this manipulation to a very large

extent. Chapter 3.1 will emphasise the extent, to which patronage as the

predominant socio-political institution, that determines political influence and the

politico-economic elites as the relevant domestic actors have shaped the

economic development of the respective countries. Chapter 3.2 will switch to

regional economic cooperation and integration, which was long dominated by

protectionist attitudes. In anticipation of Chapter four, the founding and

implementation process of AFTA will be already laid out. The importance of AFTA

as a turning point in regional economic integration will be highlighted.

3.1. Overview: patronage and early economic development

In Southeast Asia, informal institutions comprise the very traditional concepts

of political power and representation, which are expressed through patronage

networks and inter-elite relationships. Although patronage is not entirely unique to

Southeast Asian societies, this system of social exchange has strong historical roots

in the region and is remarkably all-encompassing to present day.

Indeed, patronage

has shaped social and state actors and is the underlying socio-political institution of

Bowie and Unger: 1997: have conducted a decisive study on economic policy choices of the

ASEAN Three in response to international economic changes. One of their findings is, that at least

since the 1970s economic policies have been trying to reflect particularistic demands as long as the

state's financial resources were not absolutely constrained.

Import-substitution is an economic strategy of promoting those industrial sectors which in the mid-

to long-term will substitute imported products with domestically produced goods and render the

economy less dependent on external trade.

Export-promotion is the opposite strategy of economic development. Export-oriented industrial

sectors will be promoted so that they can increase competitive advantages and succeed in international

trade. Ultimately, trade surpluses will benefit the economy through increased tax payments and an

expansion of economic activities which benefits the domestic labour force.

For a comprehensive description of the socio-historic roots of patronage in Southeast Asia see:

Neumann: 2002.

Details

Seiten
Erscheinungsform: Originalausgabe
Jahr: 2006
ISBN (eBook): 9783832498658
ISBN (Paperback): 9783838698656
Dateigröße: 1.2 MB
Sprache: Englisch
Institution / Hochschule: Universität Münster – Philosophische Fakultät, Politikwissenschaft
Note: 1,3
Schlagworte: asean free trade area afta rational choice theorie lobbyismus interessenverband

Autor

Kathrin Prasse (Autor:in)