On January 28, 1992, the leaders of the Indonesia, Thailand, Singapore, Brunei, the Philippines, and Malaysia met in Singapore to attempt — in a region marked by division, planned economies, and violence — to create a plan for taking down the barriers between them and establish the region as one that promoted free trade, liberalism, and peace.

This year marks the thirty-second anniversary of the signing of the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) agreement. With the world becoming increasingly divided and the dream of creating a Fukuyamacan liberal world seeming illusive, it is time to review whether AFTA has succeeded in achieving what it was set out to do. Has free trade unleashed the region’s economic potential? Has it narrowed the gap of development among the member-states? Has it encouraged investment from outside the region? Who has gained most from AFTA and who has been left behind? What’s next for AFTA?

In 1992, the original ASEAN-5 (Indonesia, Thailand, Singapore, Philippines, and Singapore commanded 4.35% of the world economy, according to the IMF. Thirty-two years later that number is now 5.28%, less than a 1% increase. Over that same time frame, China moved from 4.89% to 18.82%. The Chinese economic expansion is certainly exceptional, but given the similar demographic and natural resource opportunity present in SE Asia, why have the ASEAN countries, despite all the liberalization, languished?

China, in the early throes of Deng Xiaoping’s “reform and opening-up,” embarked on a radical transformation post-1992. Its Special Economic Zones (SEZs) turned coastal enclaves into economic powerhouses, privatization unleashed entrepreneurial zeal, and WTO membership flung open the doors to global trade, setting the stage for rapid industrialization and explosive growth. Meanwhile, the ASEAN-5 pursued a more tempered version of economic integration. AFTA, while a significant step towards regional economic unity, focused on creating a competitive bloc rather than individual powerhouses. A regulatory noodle soup impeded investment, and industrialization was slow and fragmented as undeveloped members maintained their trade barriers on vulnerable industries well into the 2000s. This resulted in gradual growth, nothing worth noting on the world stage.

The establishment of the AFTA was aimed at boosting economic integration to increase the region's competitive edge as a production base geared for the world market. One of the key objectives was to attract foreign direct investment (FDI) into the region by reducing the trade barriers among member countries, improving the ease of doing business, and presenting a unified market to investors. However, the data suggests that FDI remained relatively subdued throughout the 1990s and early 2000s.

In the case of Indonesia, there were periods of negative FDI inflows in the late 1990s and early 2000s. This downturn can be attributed to several factors including the Asian financial crisis, which severely impacted investor confidence and economic stability in the region. Indonesia, in particular, was hit hard, with shrinking investment reflecting the economic and political turmoil of the time.

The global financial crisis of 2007-2008 marked a significant turning point for FDI worldwide. In the aftermath, there was a notable surge in FDI outflows from developed economies such as the United States and the European Union, propelled by the availability of cheap capital and the aggressive monetary policies enacted to stimulate their economies. These outflows sought higher returns and new opportunities in emerging markets, including those in the ASEAN region.

Nevertheless, the distribution of FDI within ASEAN was highly uneven. Singapore, with its well-established financial markets, strategic location, and business-friendly environment, attracted the lion's share of these inflows. The island nation has long been the regional hub for multinational corporations and thus has been the primary beneficiary of the uptick in FDI.

Other ASEAN countries did not fare as well as Singapore in capturing FDI. While there was an increase in investment inflows, it was less pronounced. Structural challenges, varying levels of infrastructure, regulatory hurdles, and political risk factors have influenced the FDI distribution among the ASEAN member states, with a significant proportion of the capital favoring the more developed and stable economies.

Over the past decade, China has emerged as the dominant investor in the region. From 2012 to 2021, China has claimed an assertive 19.3% stake in the region's investment portfolio, showcasing a strategic focus on deepening economic ties and expanding influence. This is evident in its substantial investments, such as the 12.4% share in Thailand amounting to $7.44 billion, a notable 28.4% in Malaysia with a massive $37.8 billion, and a staggering 93.6% in Brunei, infusing $13.7 billion into the tiny nation. Even in economically diverse Singapore and resource-rich Indonesia, China's investments are significant at 11.1% and 20%, totaling $13 billion and $38.8 billion, respectively. The Philippines also saw a considerable 22% of its investments, amounting to $17.8 billion, coming from China.

In contrast, the United States, with its long-standing presence and historical influence in the region, accounted for 12.7% of the total investments, injecting a total of $496 billion across various nations. This includes a 13.5% share in Thailand at $8.1 billion and 15% in Malaysia with $19.9 billion. The US presence in Brunei is comparatively minimal at just 1.1%, translating to $158 million. However, the US leads in Singapore, investing 26.8% with a substantial $31.5 billion. In Indonesia and the Philippines, the US investments stand at 7.5% and 14.9%, equaling $15.4 billion and $12 billion, respectively.

But where exactly is all this influx of foreign investment going? On the surface, the liberalization of Southeast Asia's economies, epitomized by AFTA's allowance for up to 70% foreign ownership in the service sector, seems like a win for local markets. However, a closer look reveals a different story. The liberalization benefits predominantly the multinationals, with cash flowing into sectors not owned by local Indonesians or Filipinos, but by foreign entities—Japanese, Chinese, American, European. The people at the helm are often expats: the consultants, financiers, and NGO workers, all administering a new form of influence in the guise of investment.

This investment is less a boon for local small-scale farmers or fishermen, and more for the corporate service sector—essentially acting as neo-colonial stewards overseeing Southeast Asia's integration into the global market. The wave of foreign money primarily enriches these overseers, especially evident post-2008 as China revved up its investment engines.

One might wonder, then, if this dynamic represents a closing gap in the inequality among ASEAN nations or if it's exacerbating it. Aside from Singapore—a hub for these corporate service giants—the situation hints at a nuanced shift. Nations like Indonesia and the Philippines see some benefits, but beneath the surface, there’s a fundamental realignment at play. The region is bifurcating, not just between nations but within them, into two camps: the traditional agricultural exporters and the modern service sectors.

Consider the Indonesian farmer facing new regulations touted as 'good practices.' These often ramp up costs, making local produce less competitive—seemingly corralling agricultural exports to safeguard the market for foreign (American/EU) agricultural giants.

This division paints a stark dichotomy: on one side are the newer, rapidly globalizing states, and on the other, the older, more established economies. But the split is even more intrinsic—between those reliant on exporting natural resources and those who have embraced the service economy.

This phenomenon is crystallized by the way FDI concentrates in Singapore, the region's service sector titan, leaving its agricultural neighbors grappling with regulations that benefit foreign investors over local agronomy.

Income inequality metrics tell their own tale. In places like Singapore, wealth concentration has surged among the top 1%, as shown in recent data. In contrast, in countries like Indonesia and the Philippines, the wealth share of the richest has remained relatively stable, implying that the flood of FDI isn't even trickling up to the local elite but is instead flowing back into the coffers of multinational investors.

As the ASEAN Free Trade Area marks over three decades of existence, it's imperative for the member states to undertake a critical introspection of the real impact of liberalization. Beyond the veneer of GDP growth lies a multifaceted narrative of economic stratification and the sidelining of the traditional agricultural base. This dichotomy, with service sector affluence on one end and agrarian stagnation on the other, sows the seeds of socio-political discord. It is not unimaginable that the marginalized—those who till the fields and remain tethered to the land—could eventually resist, perhaps even revolt, against what they perceive as neo-colonial exploitation by both foreign corporate interests and their local enablers.

In the looming shadow of such unrest, ASEAN must contend with the question of its own evolution. To stave off potential conflict and ensure equitable growth, ASEAN may need to transform from a platform of mere diplomatic gestures to one of decisive action. It must determine if it possesses the requisite resolve and unity to enforce its liberal policies effectively, to maintain the integrity of its supply chains, and to foster a genuine regional identity that supersedes national allegiances. Such a pivot—toward actualizing a supranational authority with the ability to act, rather than just deliberate—could be the linchpin in securing a stable and prosperous future for the region. Without this courage to evolve, ASEAN risks becoming an echo chamber of high-minded ideals, distant from the ground realities of those it claims to serve.

On January 28, 1992, the leaders of the Indonesia, Thailand, Singapore, Brunei, the Philippines, and Malaysia met in Singapore to attempt — in a region marked by division, planned economies, and violence — to create a plan for taking down the barriers between them and establish the region as one that promoted free trade, liberalism, and peace.

This year marks the thirty-second anniversary of the signing of the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) agreement. With the world becoming increasingly divided and the dream of creating a Fukuyamacan liberal world seeming illusive, it is time to review whether AFTA has succeeded in achieving what it was set out to do. Has free trade unleashed the region’s economic potential? Has it narrowed the gap of development among the member-states? Has it encouraged investment from outside the region? Who has gained most from AFTA and who has been left behind? What’s next for AFTA?

In 1992, the original ASEAN-5 (Indonesia, Thailand, Singapore, Philippines, and Singapore commanded 4.35% of the world economy, according to the IMF. Thirty-two years later that number is now 5.28%, less than a 1% increase. Over that same time frame, China moved from 4.89% to 18.82%. The Chinese economic expansion is certainly exceptional, but given the similar demographic and natural resource opportunity present in SE Asia, why have the ASEAN countries, despite all the liberalization, languished?

China, in the early throes of Deng Xiaoping’s “reform and opening-up,” embarked on a radical transformation post-1992. Its Special Economic Zones (SEZs) turned coastal enclaves into economic powerhouses, privatization unleashed entrepreneurial zeal, and WTO membership flung open the doors to global trade, setting the stage for rapid industrialization and explosive growth. Meanwhile, the ASEAN-5 pursued a more tempered version of economic integration. AFTA, while a significant step towards regional economic unity, focused on creating a competitive bloc rather than individual powerhouses. A regulatory noodle soup impeded investment, and industrialization was slow and fragmented as undeveloped members maintained their trade barriers on vulnerable industries well into the 2000s. This resulted in gradual growth, nothing worth noting on the world stage.

The establishment of the AFTA was aimed at boosting economic integration to increase the region's competitive edge as a production base geared for the world market. One of the key objectives was to attract foreign direct investment (FDI) into the region by reducing the trade barriers among member countries, improving the ease of doing business, and presenting a unified market to investors. However, the data suggests that FDI remained relatively subdued throughout the 1990s and early 2000s.

In the case of Indonesia, there were periods of negative FDI inflows in the late 1990s and early 2000s. This downturn can be attributed to several factors including the Asian financial crisis, which severely impacted investor confidence and economic stability in the region. Indonesia, in particular, was hit hard, with shrinking investment reflecting the economic and political turmoil of the time.

The global financial crisis of 2007-2008 marked a significant turning point for FDI worldwide. In the aftermath, there was a notable surge in FDI outflows from developed economies such as the United States and the European Union, propelled by the availability of cheap capital and the aggressive monetary policies enacted to stimulate their economies. These outflows sought higher returns and new opportunities in emerging markets, including those in the ASEAN region.

Nevertheless, the distribution of FDI within ASEAN was highly uneven. Singapore, with its well-established financial markets, strategic location, and business-friendly environment, attracted the lion's share of these inflows. The island nation has long been the regional hub for multinational corporations and thus has been the primary beneficiary of the uptick in FDI.

Other ASEAN countries did not fare as well as Singapore in capturing FDI. While there was an increase in investment inflows, it was less pronounced. Structural challenges, varying levels of infrastructure, regulatory hurdles, and political risk factors have influenced the FDI distribution among the ASEAN member states, with a significant proportion of the capital favoring the more developed and stable economies.

Over the past decade, China has emerged as the dominant investor in the region. From 2012 to 2021, China has claimed an assertive 19.3% stake in the region's investment portfolio, showcasing a strategic focus on deepening economic ties and expanding influence. This is evident in its substantial investments, such as the 12.4% share in Thailand amounting to $7.44 billion, a notable 28.4% in Malaysia with a massive $37.8 billion, and a staggering 93.6% in Brunei, infusing $13.7 billion into the tiny nation. Even in economically diverse Singapore and resource-rich Indonesia, China's investments are significant at 11.1% and 20%, totaling $13 billion and $38.8 billion, respectively. The Philippines also saw a considerable 22% of its investments, amounting to $17.8 billion, coming from China.

In contrast, the United States, with its long-standing presence and historical influence in the region, accounted for 12.7% of the total investments, injecting a total of $496 billion across various nations. This includes a 13.5% share in Thailand at $8.1 billion and 15% in Malaysia with $19.9 billion. The US presence in Brunei is comparatively minimal at just 1.1%, translating to $158 million. However, the US leads in Singapore, investing 26.8% with a substantial $31.5 billion. In Indonesia and the Philippines, the US investments stand at 7.5% and 14.9%, equaling $15.4 billion and $12 billion, respectively.

But where exactly is all this influx of foreign investment going? On the surface, the liberalization of Southeast Asia's economies, epitomized by AFTA's allowance for up to 70% foreign ownership in the service sector, seems like a win for local markets. However, a closer look reveals a different story. The liberalization benefits predominantly the multinationals, with cash flowing into sectors not owned by local Indonesians or Filipinos, but by foreign entities—Japanese, Chinese, American, European. The people at the helm are often expats: the consultants, financiers, and NGO workers, all administering a new form of influence in the guise of investment.

This investment is less a boon for local small-scale farmers or fishermen, and more for the corporate service sector—essentially acting as neo-colonial stewards overseeing Southeast Asia's integration into the global market. The wave of foreign money primarily enriches these overseers, especially evident post-2008 as China revved up its investment engines.

One might wonder, then, if this dynamic represents a closing gap in the inequality among ASEAN nations or if it's exacerbating it. Aside from Singapore—a hub for these corporate service giants—the situation hints at a nuanced shift. Nations like Indonesia and the Philippines see some benefits, but beneath the surface, there’s a fundamental realignment at play. The region is bifurcating, not just between nations but within them, into two camps: the traditional agricultural exporters and the modern service sectors.

Consider the Indonesian farmer facing new regulations touted as 'good practices.' These often ramp up costs, making local produce less competitive—seemingly corralling agricultural exports to safeguard the market for foreign (American/EU) agricultural giants.

This division paints a stark dichotomy: on one side are the newer, rapidly globalizing states, and on the other, the older, more established economies. But the split is even more intrinsic—between those reliant on exporting natural resources and those who have embraced the service economy.

This phenomenon is crystallized by the way FDI concentrates in Singapore, the region's service sector titan, leaving its agricultural neighbors grappling with regulations that benefit foreign investors over local agronomy.

Income inequality metrics tell their own tale. In places like Singapore, wealth concentration has surged among the top 1%, as shown in recent data. In contrast, in countries like Indonesia and the Philippines, the wealth share of the richest has remained relatively stable, implying that the flood of FDI isn't even trickling up to the local elite but is instead flowing back into the coffers of multinational investors.

As the ASEAN Free Trade Area marks over three decades of existence, it's imperative for the member states to undertake a critical introspection of the real impact of liberalization. Beyond the veneer of GDP growth lies a multifaceted narrative of economic stratification and the sidelining of the traditional agricultural base. This dichotomy, with service sector affluence on one end and agrarian stagnation on the other, sows the seeds of socio-political discord. It is not unimaginable that the marginalized—those who till the fields and remain tethered to the land—could eventually resist, perhaps even revolt, against what they perceive as neo-colonial exploitation by both foreign corporate interests and their local enablers.

In the looming shadow of such unrest, ASEAN must contend with the question of its own evolution. To stave off potential conflict and ensure equitable growth, ASEAN may need to transform from a platform of mere diplomatic gestures to one of decisive action. It must determine if it possesses the requisite resolve and unity to enforce its liberal policies effectively, to maintain the integrity of its supply chains, and to foster a genuine regional identity that supersedes national allegiances. Such a pivot—toward actualizing a supranational authority with the ability to act, rather than just deliberate—could be the linchpin in securing a stable and prosperous future for the region. Without this courage to evolve, ASEAN risks becoming an echo chamber of high-minded ideals, distant from the ground realities of those it claims to serve.