The Influence of Domestic Interests on ASEAN politics

MA-Thesis / Master von Kathrin Prasse

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 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 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.

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 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.

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 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.

Zusammenfassung:

Bis Anfang der 1990er Jahre war wirtschaftliche Kooperation innerhalb der ASEAN aufgrund von protektionistischen Maßnahmen der Mitgliedsländer weitestgehend von Misserfolgen geprägt. Dieser Zustand änderte sich 1992 mit der Gründung der ASEAN Free Trade Area (AFTA), die als erster ernsthafter Schritt in Richtung regionale Wirtschaftsintegration gewertet wird.

Die Gründung und spätere Umsetzung der Freihandelszone sind von zwei unterschiedlichen Eigenschaften gekennzeichnet. Einerseits förderten die Mitgliedsländer eine positive Entwicklung der Freihandelszone – der ursprüngliche Zeitrahmen bis zur vollständigen Einführung der Freihandelszone wurde um fünf Jahre verkürzt und das Originalabkommen um weitere Programme erweitert und vervollständigt. Andererseits ermöglichte der institutionelle Aufbau der Freihandelszone den Mitgliedsländern von Anfang an ein hohes Maß an Flexibilität zur Verzögerung von geplanten Zollreduzierungen. Generell war die Umsetzungsphase von Implementierungsproblemen geprägt. Letztendlich führte diese gegensätzliche Entwicklung zu der Fragestellung dieser Forschungsarbeit: Warum wurde AFTA gegründet und warum weist die institutionelle Rahmenvereinbarung ein hohes Maß an rechtlicher und zeitlicher Flexibilität auf, die es den Mitgliedsstaaten ermöglicht, den Implementationsprozess zu verzögern?

Die Gründung und Implementierung der Freihandelszone sind zu einem Großteil von den wirtschaftlichen Interessen innenpolitisch relevanter Akteure bestimmt, die Einfluss auf die jeweiligen Regierungen nehmen, um ihre Interessen durchzusetzen.

Handelsliberalisierung hat unterschiedliche Auswirkungen auf die wirtschaftlichen Interessen innenpolitisch relevanter Akteure. Exportorientierte, wettbewerbsfähige Akteure werden profitieren, während die Erreichung der wirtschaftlichen Interessen von importkonkurrierenden, nicht/gering wettbewerbsfähigen Akteure gefährdet ist. Daher sind auf innenpolitischer Ebene Machtkämpfe um die Durchsetzung der jeweiligen wirtschaftlichen Interessen dieser Akteure wahrscheinlich.

Im theoretischen Fokus dieser Forschungsarbeit liegt ein rational-choice-Ansatz ähnlich dem Helen Milners (1997). Da in Südostasien nicht-staatliche Akteure keinen direkten Einfluss auf die regionale Politik innerhalb der ASEAN nehmen können, sind sie gezwungen, die jeweiligen Regierungen in ihrem Interesse zu beeinflussen. Um den Einfluss von nicht-staatlichen, hier zumeist privatwirtschaftlichen Akteuren auf die regionale Ebene via die nationalstaatlichen Regierungen analysieren zu können, hat diese Arbeit einen Koalitionenansatz (nach Solingen 1998) mit einem Institutionenansatz (nach Milner 1997; MacIntyre 2003; Neumann 2002) kombiniert.

Die Arbeit basiert auf der Analyse von Primär- und Sekundärliteratur. Es wurden keine eigenen Daten erhoben.

Methodologisch im Vordergrund stand bei dem Koalitionenansatz die Identifikation von wirtschaftlichen Interessen. Vereinfachend wurde vorausgesetzt das nicht-staatliche Akteure drei mögliche Positionen aufgrund ihrer Interessen gegenüber Freihandel beziehen können. Sie können je nach Interessenlage die Einführung einer Freihandelszone befürworten, ablehnen oder sind ihr gegenüber indifferent, insofern sie entweder positive oder negative Erwartungen haben oder gar nicht betroffen sind. Die Akteure, die aufgrund ihrer Exportorientierung und Wettbewerbsfähigkeit die Einführung der AFTA befürworteten, wurden der international ausgerichteten Koalition zugeordnet. Die Akteure, die eher importkonkurrierend und wenig wettbewerbsfähig waren, wurden der national-konservativ ausgerichteten Koalition beisortiert. Akteure, die entweder keine Position bzgl. der Freihandelszone bezogen oder deren Position nicht eindeutig zusortiert werden konnte, mussten von der Analyse ausgeschlossen werden.

Im Anschluss an diese erste Interessenidentifikation ermöglichte der Institutionenansatz eine Bestimmung des politischen Einflusses der nicht-staatlichen Akteure auf die jeweiligen Regierungen und gab letztendlich Aufschluss über die politische Durchsetzungskraft einer jeden Koalition. Ausgangspunkt der Institutionenanalyse waren Patronage- und Elitenbeziehungen, die eine sehr persönliche Einflussnahme auf die Politik ermöglichen. Methodologisch im Vordergrund stand hierbei die Identifikation von möglichen Patronagebeziehungen zwischen den nicht-staatlichen Akteuren und den Politikern.

Gleichzeitig wurde die wirtschaftliche Gesetzgebung auf der Ebene des Nationalstaates, die direkt von den nicht-staatlichen Akteuren beeinflusst wurde, zeitlich mit dem politischen Einfluss der jeweiligen Koalitionen und mit der Gründung und Einführung der Freihandelszone verglichen. Dieser Vergleich der nationalstaatlichen Gesetzgebung mit der Einführung der Freihandelszone ermöglichte es, den nicht vorhandenen direkten Einfluss der nicht-staatlichen Akteure auf die regionale Politik zu umgehen und trotzdem deren Einfluss sichtbar zu machen.

In den drei untersuchten Ländern konnten jeweils zwei Koalitionen identifiziert werden, diese wiesen zu unterschiedlichen Zeitpunkten unterschiedlich hohe Grade an politischer Einflussnahme auf. Allgemein geht die Gründung der Freihandelszone auf einen hohen Einfluss der international ausgerichteten Koalition zurück und insbesondere auf die Interessen von ausländischen Investoren. Eine hohe zeitliche Übereinstimmung der Gründungsphase mit wirtschaftspolitischen Interessen ist besonders in Thailand und Malaysia auffällig. Am Beispiel Indonesiens kann häufig eine negative Einflussnahme seitens wirtschaftlicher Akteure belegt werden.

An der flexiblen Institutionalisierung innerhalb des CEPT (Common Effective Preferential Tariff Scheme), dem Hauptwerkzeug der AFTA und der Auslassung von sensitiven Wirtschaftssektoren, wie bestimmter landwirtschaftlicher Produkte und Dienstleistungen, wird jedoch deutlich, dass bei Gründung und Einführung der AFTA die Interessen der national-konservativen Koalition ebenfalls berücksichtigt wurden. Letztendlich erweist sich die Freihandelszone als ein Kompromiss zwischen beiden Kräften.

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