ASEAN FREE TRADE AREA (AFTA): AN UPDATE


The ASEAN Heads of State and Government decided to establish an ASEAN Free Trade Area or AFTA in 1992. The objective of AFTA is to increase the ASEAN region’s competitive advantage as a production base geared for the world market. A vital step in this direction is the liberalization of trade through the elimination of tariffs and non-tariff barriers among the ASEAN members. This activity has begun to serve as a catalyst for greater efficiency in production and long-term competitiveness. Moreover, the expansion of intra-regional trade is giving the ASEAN consumers wider choice and better quality consumer products.

The Common Effective Preferential Tariff (CEPT) Agreement for AFTA requires that tariff rates levied on a wide range of products traded within the region are reduced to 0-5%. Quantitative restrictions and other non-tariff barriers are to be eliminated. Although originally scheduled to be realised by 2008, the target of a free trade area in ASEAN was continuously moved forward. AFTA will now be fully completed by the year 2002.

Products Covered Under the CEPT Agreement

In principle, the free trade area covers all manufactured and agricultural products, although the timetables for reducing tariffs and removing quantitative restrictions and other non-tariff barriers differ.

Inclusion List. Products in the Inclusion List are those that have to undergo immediate liberalisation through reduction in intra-regional (CEPT) tariff rates, removal of quantitative restrictions and other non-tariff barriers. Tariffs on these products should be down to a maximum of 20% by the year 1998 and to 0-5% by the year 2002. The new Members of ASEAN have up to 2006 (Viet Nam), 2008 (Laos and Myanmar) and 2010 (Cambodia) to meet this deadline. By the year 2000, there would be 53,294 tariff lines in the Inclusion List representing 82.78% of all tariff lines in ASEAN.

Temporary Exclusion List (TEL). Products in the Temporary Exclusion List can be shielded from trade liberalisation only for a temporary period of time. However, all these products would have to be transferred into the Inclusion List and begin a process of tariff reduction so that tariffs would come down to 0-5%. Starting on 1 January 1996, annual installments of products from the TEL have been transferred into the Inclusion List. By the year 2000, there would remain 9,674 tariff lines in the TEL representing about 15.04% of all tariff lines in ASEAN.

Sensitive List. This contains unprocessed agricultural products, which are given a longer time frame before being integrated with the free trade area. The commitment to reduce tariffs to 0-5%, remove quantitative restrictions and other non-tariff barriers is extended up to the year 2010. The new members of ASEAN have up to 2013 (Viet Nam), 2015 (Laos and Myanmar) and 2017 (Cambodia) to meet this deadline. By the year 2000, there would be 370 tariff lines in the Sensitive List making up 0.58% of all tariff lines in ASEAN.

General Exception (GE) List. These products are permanently excluded from the free trade area for reasons of protection of national security, public morals, human, animal or plant life and health and articles of artistic, historic and archaeological value. There are 1,036 tariff lines in the GE List representing about 1.61% of all tariff lines in ASEAN.

                                                               

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Acceleration of AFTA

The acceleration of the AFTA timetable has been adopted as part of the measures in response to the regional financial crisis, which hit East Asia beginning in July 1997. It signals the ASEAN countries’ reaffirmation of their commitment to continue with regional integration and economic liberalization.

TABLE 1

TIMETABLE FOR ACCELERATING AFTA
FOR THE ORIGINAL SIX ASEAN COUNTRIES                                                                                   

 YEAR

COMMITMENT 

2000

A minimum of 90% of the six countries’ total tariff lines must have tariffs of 0-5%. Individually, each country would commit to achieve a minimum of 85% of the Inclusion List with tariffs of 0-5%.

2001

Each country would achieve a minimum of 90% of the Inclusion list in the 0-5% tariff range.

2002

100% of items in the Inclusion List would have tariffs of 0-5%, but with some flexibility.

ASEAN has agreed on a firm timetable leading up to the full realisation of AFTA by the year 2002. By the year 2000, each country will have 85% of the items in its Inclusion List with tariffs of 0-5%. This will be increased to 90% of the Inclusion List by the year 2001 and then for the whole Inclusion List by the year 2002. The Inclusion List refers to those products, which are scheduled for tariff reduction, removal of quantitative restrictions and non-tariff barriers.

By 1 January 2000, the total number of tariff lines in the CEPT Inclusion List will reach 53,254 tariff lines, which represents about 82.78% of all tariff lines in the ten ASEAN countries. By then, the average tariff rate among ASEAN economies will be down to 3.87%. The average tariff was 12.76% when AFTA was launched in 1993.

Trade Facilitation Initiatives

Attention has also focused on trade facilitation activities in the areas of customs and the elimination of technical barriers to trade. These represent concrete, practical and business friendly initiatives that should lower the cost of doing business in the region.

In customs, efforts are being directed at removing barriers to trade at customs points through the simplification and harmonisation of customs procedures and specifically, measures such as the harmonisation of tariff nomenclature and the accelerated implementation of the WTO Valuation Agreement. ASEAN has targeted the adoption of an ASEAN Harmonised Tariff Nomenclature by the year 2002 and is accelerating the adoption of the WTO Valuation Agreement (WVA) by the year 2000.

ASEAN is now seeking to develop product-specific mutual recognition arrangements in conformity assessment so that product-related standards and regulations do not become technical barriers to trade. Several sectors have been identified for possible sector MRAs – cosmetics pharmaceuticals, electrical and telecommunication products.

ASEAN has also set the goal of harmonising national standards with international ones, such as International Standards Organisation (ISO), International Electrotechnical Commission (IEC) and International Telecommunications Union (ITU) standards, for 20 priority product groups by the year 2000. These 20 product groups are some of the most widely traded products in the region including such important consumer durables as radios, television sets, refrigerators, air conditioners and telephones.

Strengthening the Rules and Disciplines of the CEPT Agreement

Efforts are being made to strengthen the rules and disciplines of the CEPT Agreement. In November 1996, ASEAN adopted a dispute settlement mechanism (largely patterned after the WTO mechanism) covering all economic agreements. The provision on emergency measures under the CEPT Agreement has also been strengthened to make it consistent with the WTO Agreement on Safeguard Measures. A Protocol on Notification Procedures has been established to provide advance warning of actions or measures that can have an adverse effect on concessions granted under an existing ASEAN agreement. These protocols represent the evolution of ASEAN economic cooperation towards a more rule-based system.

Growth of Intra-ASEAN Trade

Trade among ASEAN countries has grown from US $ 44.2 billion in 1993 to US $ 73.4 billion in 1998, representing an average increase of 13.2%. Before the financial and economic crisis struck in mid 1997, intra-ASEAN exports had been increasing by 29.6%. This is significantly higher than the rate of increase of total ASEAN exports at 18.8%. But the advent of the financial and economic crisis has adversely affected intra-regional trade more than trade with the rest of the world. Intra-ASEAN trade contracted by 15.9% in 1998 compared to the 5.8% reduction in total ASEAN exports.

                                                             fig1

FIGURE 1

These Figures reflect the export of seven ASEAN countries - Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam.

Ultimate Target for AFTA: Zero Tariff Rates

Member Countries are working towards the total elimination of import duties on all products to achieve the ultimate objective of a free trade area. The AFTA Council has agreed that the target dates to achieve this objective will be in 2015 for the six original ASEAN Member Countries and 2018 for the newer Members. This move is expected to create an integrated market where there is free flow of goods within the region. Total elimination of import duties shall achieve a maximum impact in enhancing the ASEAN region’s economic competitiveness vis-à-vis the rest of the world.

ASEAN Secretariat
Jakarta, November 1999