Attempting developmental regionalism through AFTA: the domestic sources of regional governance

The ASEAN Free Trade Area (AFTA) has conventionally been explained as a project of open regionalism adopted by the ASEAN member governments to attract foreign direct investment to the region through the 'carrot' of the single regional market. Yet, when the same governments incorporated an investment liberalisation component programme within the afta project in 1998, they opted to accord full national treatment and market access privileges to foreign (non-ASEAN) investors at least 10 years later than to domestic or ASEAN national investors. Although member governments removed this particular discriminatory clause in September 2001, the fact that a distinction between foreign and domestic investors was adopted and maintained for a three-year period is puzzling given AFTA's acknowledged role as a magnet for foreign investment. Although AFTA is clearly a response to the pressures of globalisation, the available theoretical models of the relationship between globalisation and regionalism are unable to account for this empirical anomaly because they do not make a distinction between foreign-owned and domestic-owned capital. This paper advances the notion of 'developmental regionalism' as a way to incorporate domestic-owned capital in analysing the globalisation-regionalism relationship, which allows for a more robust explanation of the empirical puzzle outlined above.