AFTA and a customs union<\/p>\n
By Riyadi Suparno<\/p>\n
BANGKOK (JP): Volvo Car (Thailand) Ltd recently exported one
\nunit of its newest S80 series to Indonesia to take advantage of
\nthe lower tariffs accorded under the Common Effective
\nPreferential Tariff (CEPT) scheme, the basis for the ASEAN Free
\nTrade Area (AFTA).<\/p>\n
As the Thai Volvo has met the required ASEAN (Association of
\nSoutheast Asian Nations) local content of 40 percent, the car is
\nsubject to only 20 percent import duty on entering Indonesia --
\nmuch lower than the normal duty of 65 percent Indonesia would
\nhave charged for imported built-up cars.<\/p>\n
So Volvo Car (Thailand) Ltd plans to export more cars to
\nIndonesia next year.<\/p>\n
"It went very smoothly and because of this we will export
\nmore, maybe about 100 units next year," said Aroon Laowatanakul,
\ngeneral manager of Volvo Car (Thailand) Ltd.<\/p>\n
Aroon noted that if all 10 member countries of ASEAN moved
\nforward and implemented their commitments under the CEPT scheme,
\nASEAN would be really an attractive place for trade and
\ninvestment.<\/p>\n
Nevertheless, ASEAN and AFTA do not always evolve in the
\ndirection businesses would like to see.<\/p>\n
This is evident from the recent move by Malaysia to delay the
\ninclusion of their automotive sector in CEPT's inclusion list, a
\nlist of tariffs subject to liberalization by 2002 for the six
\noriginal AFTA signatories -- Brunei, Indonesia, Malaysia, the
\nPhilippines, Singapore and Thailand -- by 2006 for Vietnam, 2008
\nfor Laos and Myanmar, and 2010 for Cambodia.<\/p>\n
And ASEAN economics ministers on Thursday gave their nods to
\nMalaysia's request. They agreed to give Malaysia a two-year
\nreprieve before it cuts tariffs on its struggling car industry.<\/p>\n
Malaysia's move has angered Thailand, where multinational car
\nmakers have invested heavily and are banking on increased exports
\nto countries such as Malaysia. The two governments will meet next
\nmonth to discuss compensation.<\/p>\n
Following Malaysia's move, Indonesian automotive businesses
\nurged the Indonesian government to delay Indonesia's commitment
\nto automotive liberalization under CEPT.<\/p>\n
Although the Indonesian government staunchly rejected the
\nproposal from local automotive industries, the case served as a
\nworrying sign of backtracking in AFTA by its members.<\/p>\n
"When one ASEAN member country backtracks, I think it impacts
\nthe investment atmosphere and also confidence in the agreement. I
\nthink the private sector loses the opportunity," Aroon said at an
\nAFTA roundtable discussion held here last week, organized jointly
\nby Konrad Adenauer Foundation and ASEAN Secretariat.<\/p>\n
Speaking at the same occasion, ASEAN Secretary-General Rodolfo
\nC. Severino Jr. tried to reduce the impact of Malaysia's move on
\nbusinesses by saying that the move would not significantly affect
\ntrade and investment in ASEAN.<\/p>\n
He argued that Malaysia's proposal covered only completely
\nbuilt-up and completely knocked-down vehicles, and did not
\ninclude car parts.<\/p>\n
In addition, it would be limited to trade with Malaysia, while
\ntrade with other parties of AFTA would not be affected. And car
\ntrades with Malaysia accounted for less than 2 percent of intra-
\nASEAN trade, that reached US$74.4 billion in 1999.<\/p>\n
Besides, Malaysia was still committed to liberalizing its auto
\nindustry. In the proposal, Malaysia only wanted to delay the
\nliberalization of its auto industry from its initial target date
\nof 2002 to a later date.<\/p>\n
Severino contended that Malaysia's move was not against the
\nAFTA agreement.<\/p>\n
According to a signed protocol regarding the implementation of
\nCEPT's temporary exclusion list, member countries are allowed to
\ntemporarily delay the transfer of products or suspend concession
\non the products already transferred into the inclusion list.<\/p>\n
This protocol was signed by member countries to provide some
\nflexibility to members facing real problems on their last tranche
\nof manufactured products.<\/p>\n
"This rule is patterned after Article 28 of the GATT, and
\ntherefore, it is in accordance with international practice,"
\nSeverino said, referring to the General Agreement on Tariffs and
\nTrade which was renamed the World Trade Organization (WTO) in
\nJanuary, 1995.<\/p>\n
Therefore, he disagreed with the notion that the delay in the
\nliberalization of Malaysia's auto industry would bring about a
\ndevastating effect on AFTA.<\/p>\n
Aside from automotive, tariff reductions for products under
\nCEPT's inclusion list would go ahead as scheduled, Severino
\nnoted.<\/p>\n
Currently, each of the first six signatories has 85 percent of
\nthe items in the inclusion list with tariffs between 0 and 5
\npercent. The proportion of products in the inclusion list with
\ntariffs of 0-5 percent will be increased to 90 percent by year
\n2001, then for the whole inclusion list by the year 2002. The new
\nmembers of ASEAN have up to 2006 (Vietnam), 2008 (Laos and
\nMyanmar and 2010 (Cambodia) to meet this deadline.<\/p>\n
By the year 2001, Severino said, there would be 55,680 tariff
\nlines in the inclusion list, representing about 85 percent of all
\ntariff lines in ASEAN.<\/p>\n
Nevertheless, he agreed with the argument that ASEAN needed to
\nmove forward to supplement AFTA to make the region more
\nattractive for trade and investment activities.<\/p>\n
The forward looking policies among ASEAN members are more
\nimportant now as ASEAN seems to be losing the competition in
\nattracting investment and boosting trade with third parties. Some
\nexperts contend that ASEAN after the crisis is less attractive,
\ncompared with, say, China.<\/p>\n
Data at the ASEAN Secretariat shows that ASEAN exports have
\ndeclined and foreign investment in the region have also dropped
\nsharply since the advent of the financial and economic crisis in
\nthe region.<\/p>\n
Before the financial crisis, the rate of combined ASEAN
\nexports had been growing by an average of 18.8 percent per annum
\nsince 1993. But in 1998, ASEAN exports contracted by 5.8 percent,
\nbefore they rebounded again by 7.6 percent in 1999.<\/p>\n
Foreign investment in ASEAN also dropped sharply in the past
\ntwo years, from $21.5 billion in 1997 to $16.8 billion in 1998
\nand $13.1 billion in 1999. This constitutes a sharp blow to
\nASEAN, which in the period from 1993 to 1997 received an annual
\naverage of $22 billion in net foreign direct investment.<\/p>\n
Now ASEAN needs to find ways on how to restore and improve the
\nattractiveness of ASEAN as a destination for investment and
\ntrade.<\/p>\n
ASEAN leaders seem to be moving in the right direction when
\nduring their weekend informal summit in Singapore agreed to study
\nthe possibility of free trade with their three bigger northern
\nneighbors, China, Korea and Japan.<\/p>\n
Speaking at the AFTA roundtable discussion, Thai Deputy Prime
\nMinister and Minister of Commerce Supachai Panichpakdi said it
\nwould be a lot more difficult and take more time to integrate
\nASEAN's trade and investment with the three giants altogether.<\/p>\n
Supachai, who would take over as the new WTO chief in 2002,
\ncontended that it would be more logical for ASEAN to pursue a
\none-by-one approach in forging a free trade arrangement with
\neither China, Korea or Japan, rather than taking the three giants
\nat one time.<\/p>\n
Besides the bigger northern neighbors, ASEAN should also look
\nsouth to establish free trade arrangements with Australia and
\nNew Zealand which have their own free trade pact through the
\ncloser economic relations (CER).<\/p>\n
Nevertheless, all those moves would still not be enough for
\nASEAN, Supachai said, as there would still be hindrances to the
\nmovement of goods and services as well as people within ASEAN. To
\neliminate all those hurdles, ASEAN should look beyond free trade
\nand move toward establishing a customs union.<\/p>\n
Supachai's proposal is based on the development of the
\nEuropean Union that took 17 years to form from a free trade
\narrangement to a customs union with a uniform tariff system for
\nEU's trade with all other countries.<\/p>\n
"I think we can do it faster than that. We can also do better
\nthan that," Supachai said.<\/p>\n
The writer is a The Jakarta Post journalist.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/afta-and-a-customs-union-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }