The Thai textile industry's future seemed bleak in the 1950s when local investments in mechanized spinning collapsed in the face of subsidized cotton imports from Pakistan. But over the next decades, the industry grew (Tables 6.1, 6.2), and by the mid-1980s, a fairly complete textile “complex” had developed (Figure 6.1). The industry's export value also grew from roughly $636,000 in 1981 to over $4 billion in 1991, with garments gradually dominating the industry's exports (Figure 6.2). By the year 2000, Thailand was ranked as the world's ninth largest apparel exporter. The industry also became a key part of the Thai economy: it was the largest export earner by the mid-1980s and the second largest exporter in 2000 (Figure 6.3); it was also the source of 4.5% of total Thai GDP in 2003 employing over 20% of the manufacturing workforce.

But textile's share of Thai manufactured exports fell from around one-third in the mid-1980s to 14% in 1997 and 11% in 2000–2002. Thailand's share of world garment exports fell from 3.2% in 1995 to 2% in 1998. The industry's export growth rates fell from 26% in 1989 to 7.2% in 1995, actually declining by 14% in 1996. These declines reflected an overall fall in competitiveness. Textile exports subsequently rebounded (Figure 6.2), but the country's share of global textile trade continued declining to 1.8% in 2004, and the recovery was largely a function of exchange rate shifts and market diversification, not upgrading.

In 1995, Business Week identified Thailand as “Asia's New Car Capital,” and Thai leaders began describing their country as the “Detroit of Asia.” Thai automobile production had risen from around 100,000 units per year since the mid-1980s to a million units in 2005, despite a slump following the 1997 crisis (Figure 7.1). Exports, especially of the 1-ton pickup trucks for which Thailand became the second largest market in the world and a major production site for Japanese carmakers, figured as a key part of this growth (Figure 7.2). Those exports were based in part on well-developed automotive clusters housing large numbers of global producers (Figures 7.3 and 7.4). Their growth made the industry an important part of the Thai economy: by 2005 the industry accounted for 8% of the workforce and 15% of GDP, and it was the country's second largest source of export revenues.

The Thai automotive industry is, then, a clear example of successful structural change. Indonesia's auto industrialization efforts and large population (216 million vs. Thailand's 63 million in 2006) also had drawn foreign producers, but it was Thailand, not Indonesia, that became “a major base for vehicle assemblers from advanced industrial economies.” But Thailand's automotive record has been weaker than South Korea's (Figures 7.5 and 7.6). As of 2006, Korea was East Asia's only mass exporter of passenger vehicles, ranking fourth in the world in vehicle production and exporting half of its output.

The sugar industry exemplifies both the impressive diversification and the modest upgrading characteristic of the broader Thai economy. In the mid-nineteenth century, the Thai sugar industry was robust and promising: taxes on the industry constituted the largest source of cash revenue for the government, and British colonial officials predicted that Thailand would become a major sugar exporter. However, competition from colonial plantations elsewhere in Southeast Asia largely destroyed the Thai sugar industry, and by 1950 it was unable to produce enough sugar to meet domestic demand. The classic postwar study of the Thai economy concluded “there was no prospect of exporting sugar from Thailand.”

Yet the industry revived and thrived. Sugar production rose from 35,000 tons in 1953–1954 to an annual average of 5.3 million tons from 1995 to 2000. Sugar exports rose as well, from under 2,000 tons in 1961 to over 5 million in 2002 making Thailand one of the world's three largest exporters along with Australia and Brazil. Between 1993 and 1999, sugar brought in more net foreign exchange for the Thai economy than any agricultural product except rice. With 46 sugar mills and over 100,000 farms, the industry employs over 1 million people.

Comparative advantage only partially explains this turnaround. While Thailand has soil and weather conditions well suited to growing sugarcane, so do the Philippines and Brazil.

This book has addressed the institutional and political bases of two key growth transitions: structural change – the move from an economy based on a small number of traditional sectors to a more diversified structure of multiple, nontraditional activities; and upgrading – the efficient production of higher value added goods based on local inputs. The first transition is difficult: the identification of and mobilization of resources for risky new activities pose significant coordination and information challenges. My principal focus, however, has been on the even more challenging obstacles of upgrading: Why have some countries that succeeded in diversifying their economies had a much more difficult time at upgrading?

Although this set of questions has received little attention from scholars and policy makers, it lies at the heart of differences between the East Asian NICs and the “little tigers” of Southeast Asia. I have addressed these questions through comparative analyses of one “little tiger” – Thailand – a country that has transitioned from low-income to middle-income status within just a few decades and has continued to grow on the basis of impressive diversification. Yet Thailand faces “a real challenge of sustaining its growth and transitioning into a higher income country …” With more intense global competition, Thailand needs to improve its productivity and competitiveness “if it … (is) … to avoid being stuck in a middle-income trap in which many Latin America (sic) countries have been in for several decades.”

The enlargement of the European Community (EC) and later the European Union (EU) was never particularly popular. Indeed, the first attempt at widening the EU culminated in the Community's “first real crisis” when Charles de Gaulle, then-President of France, rejected the British accession in a dramatic press conference at the Élysée Palace (Nicholson and East 1987, 39). He claimed that Britain's conditions for joining the Union were unacceptable to France. In addition to fearing that a rise in Atlanticism would undermine French dominance in Europe, de Gaulle was particularly concerned about the impact British membership would have on the Common Agricultural Policies (CAP). Political tensions arose from opposite interests of French farmers and the British government that sought to protect the interests of European Free Trade Association (EFTA) members, British farmers, and the Commonwealth. Moreover, it seemed impossible to compromise on granting the Commonwealth access to the common market without hurting the French interest in protecting European farmers from non-European producers. To make matters worse, the expansion of the common market to the Commonwealth would decrease France's benefits from preferential agreements with its former colonies (Ludlow 1997, 159).

Scholars who study European Union (EU) enlargement typically assume that for reasons of Pareto-efficiency only three outcomes are possible: countries either acquire full membership rights, get rejected, or stay out of the Union (e.g., Baldwin et al., 1997, Moravcsik and Vachudova 2003, Schimmelfennig 2001). Whereas this assumption was relatively unproblematic for explaining the two Northern enlargement rounds, scholars had to work hard to explain the Mediterranean enlargements in the 1980s, and were baffled by the successful conclusion of the 2004 Eastern enlargement (Schimmelfennig 2001, 2003). The puzzlement grew even more acute with the latest expansion when Bulgaria and Romania joined the Union in January 2007 even though the anticipated costs of admission by far outweighed the gains for several EU members. The failure of extant theories to account for these outcomes spurred scholars into looking for alternative explanations. In his seminal work, Schimmelfennig (2001, 2003) concludes that rational choice approaches cannot offer a satisfactory solution to the puzzle of enlargement. In their place, he proposes an explanation based on the concept of “rhetorical action.” According to his theory, the losers of enlargement could not oppose openly the admission of the remaining European states because of normative considerations.

My rationalist explanation of EU enlargement builds upon some of these insights but extends the existing theories to offer a more general framework for analyzing the phenomenon.

Accession negotiations play a key role in the relationship between distributional conflicts, differentiated membership, and the outcomes of the enlargement process. This chapter lays the foundation of the main argument by providing an overview of the formal accession process, the policy instruments used to reconcile conflicts of interest between existing members and applicant countries, and the influence of national politics on the formulation of a common European Union (EU) position by member states. Even this brief overview amply demonstrates the potential for frictions during the enlargement process. It also shows what strategies governments can use to resolve these conflicts to obtain the unanimous approval of member states to admit the applicant countries.

I begin with a short history of the five EU expansions and a description of the formal accession process, which show why accession negotiations should not be treated as a black box. The relative winners of enlargement, the relative losers, and the candidate states bargain over the terms under which accession will take place. The implementation of the acquis communautaire is at the center of these negotiations because it gives the participants an opportunity to redistribute the costs and benefits from accession by agreeing on transitional periods whose terms favor current and future member states that stand to lose most over the short-term. I look at the scope of these measures using the Eastern enlargement round as an example, and show how both EU members and candidate countries can use them strategically to influence the bargaining outcomes.

The enlargement of the European Union often causes conflict about the distribution of costs and benefits among members. States that receive significant agricultural subsidies oppose the unconditional accession of applicants with large and inefficient agricultural sectors. States that are eligible for structural subsidies expect competition for these funds from relatively large and poor newcomers with inadequately developed infrastructure. States that project high unemployment fear the liberalization of the labor market for relatively poor neighbors. EU member states that expect net losses from these distributional conflicts can stall negotiations and threaten to sabotage enlargement unless the relative winners within or without the Union agree to defray some of these costs. However, there have been many instances of candidates acceding unconditionally despite such opposition. In fact, some candidates did not have to accept any limitations on their membership even though some members had threatened to veto enlargement if these applicants were to accede without transitional differentiation.

In this chapter I evaluate the second set of hypotheses: When do EU members and candidates agree to implement transitional qualifications of membership rights for the acceding states? My theory of differentiated membership predicts that this stage of the accession negotiations will be crucial for explaining the outcomes of the enlargement process because this is where the distributional conflict can be resolved. When one or more EU members expect net losses and ask for discriminatory measures against newcomers, enlargement cannot succeed without additional conditions.

The collapse of communism, symbolized by the fall of the Berlin Wall in 1989, made it possible to expand the EU to the East. This expansion was immediately perceived as a great opportunity to extend European integration to Central and Eastern Europe. As the European Union (EU) Commission aptly put it,

The economic impact of enlargement will be significant, as a bigger and more integrated market boosts economic growth for new and old members alike. The newcomers stand to benefit from investments from firms based in western Europe and from access to EU funding for their regional and social development. Integration of their economies with the rest of the EU is already under way, as trade agreements, negotiated and applied in advance of membership, have already removed virtually all tariff and quota barriers on their exports to current member states.

Policy harmonization deepens the cooperation within the Union but the widening of the EU is the second pillar of EU integration. Consequently, explaining the conditions under which enlargement succeeds contributes not only to our understanding of the enlargement process itself but to our understanding of EU integration in general. Given how important such understanding is and how beneficial EU members and candidates alike have perceived integration to be, it is indeed astonishing how little we still know about the enlargement process itself.

European Union members and candidates must agree on the implementation of thirty-one common EU policies over the course of enlargement. Most of the time, negotiations on individual chapters go through smoothly. Occasionally, however, an EU member would deliberately delay accession negotiations by vetoing the provisional closure of a particular chapter. The most common reason for such delaying tactics is the need to secure some derogation from the acquis communautaire. As I showed for the Eastern enlargement in 2004 (Chapter 2), EU members and candidates sometimes compromise on the full applicability of the common acquis by granting only restricted membership rights to newcomers.

I now analyze the five successful EU enlargement rounds prior to 2004 in an attempt to assess empirically the correlation between membership applications, distributional conflicts, and enlargement outcomes. There are three specific questions that I investigate in this and the next two chapters of this study:

1. Why do European Union (EU) members oppose the unconditional accession of some applicants, or, more specifically, why do they demand that new members be given restricted rights in some policy areas? (This chapter.)

2. If distributional conflicts arise during the accession negotiations, how are they resolved so enlargement can succeed? (Chapter 6.)

3. What is the relationship between the imposition of discriminatory membership and the intra-Union redistribution of enlargement costs? (Chapter 7.)