(EGM) Foreign Direct Investment in Southeast Asia - Unido

ecome insiders and thus avoid being discriminated against [Almor and Hirsch, 1995)]. Similarly,
and despite ASEAN's open regionalism [Ariff (1994)], AFTA may be discriminatory towards
outsiders. Earlier evidence pointed to the greater de facto integration of ASEAN with the rest of
the world than within the region itself [Amelung (1992)]. This has improved, at least with
respect to intra-regional FDI [Bartels (2004)]. However, intra-regional trade as a percentage of
total trade decreased by 19% between 1994 and 2001 [Schwarz and Villinger (2004)]. Recent
analysis points to these stresses and strains arising from factors such as the costs of
fragmentation within AFTA, tariffs and technical barriers, costs of doing business and standards.
A view of the fragmented nature of doing business in ASEAN is illustrated in Appendix I -
Doing Business in ASEAN Indicators 2005; and Appendix II – ASEAN Investment Climate
Indicators.
The challenge of AFTA and ASEAN + 3 from a FDI policy perspective is how to
disentangle the potential regulatory inconsistencies within Asia-Pacific Economic Cooperation
(APEC) and between most favoured nations; and avoid the ‘spaghetti bowl’ problem of rules of
origin and harmonisation of investment and trade provisions across the free trade areas
[Soesastro (2003)]. The AFTA will be successful in attracting FDI if it proves to be a catalyst for
increased market size and greater market growth with lower costs of doing business [Scally
(2000)]. Member countries would need to make a greater effort in co-ordinating their
approaches towards economic, financial and political management, to ensure that factors
identified above do not undermine AFTA aims.
The areas of increasingly significant policy concern for creating competitive location
advantages at the regional level necessary for the (mobile) assets of MNEs networks, are: (i)
regional markets; (ii) quality of cross-border communications (‘hard’ and ‘soft’ infrastructure);
(iii) regional innovation systems; (iv) presence of agglomerative economies (cross-border
clusters); and (v) regional institutions able to restrain ‘free rider’ or ‘defection’ strategies of
national governments. Related issues concern the challenges of cohering regional and national
IP policies and strategies, at the different levels of subsidiarity, and the avoidance of ‘incentive
wars’ given the increasing gravitational pull of China for FDI.
3.3 Boundaries, Hierarchies, Markets and FDI
The challenges for FDI and IP policy craft in this theme lie deep within the complexity
of the organisational form and networked operations of MNEs. The shape and operations of
MNEs are increasingly based on collaborative relationships with supplier- and value-chains and
less on wholly owned assets. This is especially prevalent in services which are currently
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