Preferences, interests, and regional integration: the development of the ASEAN industrial cooperation arrangement

Abstract

This article examines the development of regional economic integration in the Association of Southeast Asian Nations (ASEAN) region by highlighting preferences and activities of foreign multinational corporations (MNCs). The main hypothesis of this study is that as foreign MNCs operating in small local markets seek larger markets in order to achieve an efficient production level, they raise their preferences for regional economic arrangements, and that these preferences function as critical factors promoting regional economic integration. The case of the ASEAN Industrial Cooperation (AICO) arrangement revealed the complex relationship between the states' interests and MNCs' preferences. In 1996, Japanese auto MNCs, which hoped to increase production volume of plants located in the small market, successfully encouraged the ASEAN states to introduce the AICO arrangement that granted tariff reductions and local content accreditation. However, the arrangement did not work effectively after its introduction because of the states' adherence to maintaining the national interests, seeking to increase the benefits for their local economies and firms. The ASEAN members relaxed regulations concerning AICO applications after the Asian economic crisis. This policy change stemmed from auto MNCs' persistent pressure for the smooth implementation of the scheme, mixed with the states' renewed recognition of the AICO as a vehicle to promote regional economic cooperation and further inward investment.

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