ABSTRACT
Despite the importance of foreign trade to the growth performance of Southeast Asian countries, trade policy in the region has displayed a high degree of ambivalence between openness and protectionism even from the mid-1980s when most Southeast Asian governments embarked on what had then seemed a decisive shift towards economic openness. In fact, there appears to be some sort of dynamic equilibrium between trade liberalization and trade protectionism. This puzzle is part of broader political economy debates that query why reformers across much of Southeast Asia have found it difficult to overturn interventionist economic and trade policies, as well as the patronage-based networks so prevalent in the region, in favour of market-based economic systems and liberal trade policies. This chapter addresses this debate by examining two interlinked dimensions of trade policy: (a) the trade orientation of the national economy, or the degree to which the economy is formally open to exports and imports of goods and services as well as to investment given the close links between investment and trade; and (b) the institutional forms through which trade cooperation with other countries is conducted, whether through multilateral, regional or bilateral arrangements. Adoption of protectionist trade policies in the midst of official liberalization rhetoric has been
interpreted in much of the economics literature as policymakers and rulers simply lacking the political will to initiate liberal trade policies that will help enhance the efficiency of the economy and strengthen its growth prospects. A number of political economy studies have, however, attempted to unpack the notion of ‘lack of political will’ to show how the twists and turns of domestic politics, rather than economic structure alone, influence the trade policy choices of governments. The extent to which trade liberalization is politically possible in Southeast Asia is often shaped by protectionist demands from domestic business interests, sometimes acting through their respective business associations. More influential have been those corporate players closely linked to ruling elites through patronage networks or coalitions; politicians seek to favour these interests in order to maintain these mutually beneficial relationships (Islam and Chowdhury 2000). In other instances, constraints on how far liberalization can go are imposed
by nationalist concerns with safeguarding domestic industries and firms, especially those regarded as strategic for the country. A number of scholars have suggested, however, that growing competitive pressures arising from a globalizing world economy will increasingly push policymakers to dismantle interventionist trade and economic policies and other institutional structures that had facilitated state direction of domestic economic activity (Maswood 2002: 32). Yet the empirical evidence from Southeast Asia from the 1990s and into the first decade of
the twenty-first century points to the co-existence of liberal and protectionist or interventionist trade policies. Governments do not necessarily move towards comprehensive trade liberalization in the face of market pressure or in accordance with the policy advice of international organizations like the World Bank.1 While analyses of the determinants of liberal versus protectionist trade policies are helpful, the more salient question is not why trade liberalization or trade protectionism prevails but how the two are interrelated within the domestic political economy and in relation to the global market. The rest of this chapter addresses this issue, beginning with a brief discussion of the key features of trade policy in the region.
