A brief of dreams and hopes of the 10 nations

ASEAN Secretariat Jakarta

As we all know, most of the Southeast Asian region has now become a free trade zone.

Accounting for over 96 percent of all ASEAN trade, the first six signatories of the Common Effective Preferential Tariff scheme for the ASEAN Free Trade Area, or AFTA, have reduced their tariffs on intra-regional trade to no more than five percent for almost all products in the Inclusion List (IL), or removed them altogether.

The AFTA was established in January 1992 to eliminate tariff barriers among the 10 Southeast Asian countries to integrate ASEAN economies into a single production base and to create a regional market.

The Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the AFTA requires that tariff rates levied on a wide range of products traded within the region are reduced to 0 percent to 5 percent. Quantitative restrictions and other nontariff barriers are to be eliminated.

Although originally scheduled to be realized by 2008, the target of a free trade area in ASEAN was continuously moved forward.

The elimination of tariffs and nontariff barriers among the ASEAN members has served as a catalyst for greater efficiency in production and long-term competitiveness.

Moreover, the reduction of barriers to intra-regional trade is giving the ASEAN consumer a wider choice and better quality consumer products.

By the beginning of this year, only 3.8 percent of products in the CEPT Inclusion List of the first six signatories, or 1,683 items out of 44,060, should have had tariffs above five percent.

The current average tariff on goods traded under the AFTA scheme is estimated at about 3.8 percent. In the light of its later accession to the CEPT Agreement, Vietnam is expected to realize AFTA in 2006, Laos and Myanmar in 2008, and Cambodia in 2010.

The first signatories to the CEPT scheme were Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand.

The free trade area covers all manufactured and agricultural products. However, 734 tariff lines in the General Exception List, representing about 1.09 percent of all tariff lines in ASEAN, are permanently excluded from the free trade area for reasons of national security, protection of human, animal or plant life and health and articles of artistic, historic and archaeological value.

Facilitation Initiatives: Trade facilitation activities in the areas of customs and the elimination of technical barriers to trade with a view to lowering the cost of doing business in the region have also received attention.

ASEAN's efforts have been directed at the simplification and harmonization of customs procedures, and specifically, through measures such as the harmonization of tariff nomenclature and the accelerated implementation of the WTO Valuation Agreement. ASEAN has adopted an ASEAN Harmonized Tariff Nomenclature and will be implementing it this year.

ASEAN is seeking to develop product-specific mutual recognition arrangements (MRAs) in conformity assessment so that product-related standards and regulations do not become technical barriers to trade. A Mutual Recognition Arrangement on telecommunications equipment has already been put in place.

Negotiations are proceeding in the areas of cosmetics, pharmaceuticals, electrical and electronic products.

ASEAN has also agreed to align national standards with international standards, such as those of the International Standards Organization (ISO), the International Electrotechnical Commission (IEC) and the International Telecommunications Union (ITU), for 20 priority product groups by the year 2000.

These 20 product groups represent some of the most widely traded products in the region, including important consumer durables such as radios, television sets, refrigerators, air conditioners and telephones.

In addition to the 20 product groups, ASEAN will embark on the harmonization of another 72 standards for safety and 10 standards for Electromagnetic Compatibility (EMC).

Rule-based Trade Arrangement: ASEAN has adopted a disputes settlement mechanism (largely patterned after the WTO disputes settlement understanding) covering all economic agreements.

This establishes a mechanism for resolving any problems arising from the implementation of any economic agreement in ASEAN.

The provision on emergency measures under the CEPT Agreement has been strengthened to make it consistent with the WTO Agreement on Safeguarding Measures. A Protocol on Notification Procedures has been established which requires advance warning of actions or measures that can have an adverse effect on concessions granted under an existing ASEAN agreement.

ASEAN has also agreed on a Protocol Regarding the Implementation of the CEPT Scheme Temporary Exclusion List, which is intended to provide some flexibility to countries facing real problems on their last tranche of manufactured TEL products.

The Protocol will allow countries to temporarily delay the transfer of these TEL products or suspend concessions on those TEL products already transferred into the IL. The mechanism is based on Article XXVIII (Modification of Schedules) of GATT 1994.

Elimination of all Import Duties: ASEAN leaders have agreed to eliminate all import duties by 2010 for the six original members of ASEAN and by 2015 for the new members.

This move will fully create an integrated regional market of 500 million people.

Currently, 20,701 tariff lines (representing 38 percent of the IL) already have zero duties. By 2003, the first six members will each have at least 60 percent of their IL with zero duties. Vietnam will have 35.37 percent of its IL with no tariffs in 2006, while Lao PDR and Myanmar will abolish import duties on 87.6 percent and 3.9 percent respectively of their IL by 2008. Cambodia will eliminate duties on 7.64 percent of its IL in 2010.

Direction of ASEAN Trade: As a result of the successful implementation of the CEPT Scheme, trade among ASEAN countries has grown from US$44.2 billion in 1993 to $95.2 billion in 2000, representing an average annual increase of 11.6 percent. As of 2000, intra-regional exports made up about 23.3 percent of total ASEAN exports. Before the financial and economic crisis struck in mid 1997, intra-ASEAN exports had been increasing by 29.6 percent. This is significantly higher than the rate of increase of total ASEAN exports, which grew at 18.8 percent during the same period.

While there has been a slight contraction of intra-ASEAN trade in the year 2001, largely as a result of the global and regional economic slowdown, this is expected to pick up with the recovery of the global economy expected in the latter half of 2002.

The realization of the AFTA in no way lessens the importance of ASEAN's other economic partners. The ASEAN leaders, at their summit in Bandar Seri Begawan from 5 November through 6 November 2001, resolved to promote economic linkages among East Asian countries toward integrating the ASEAN region with China, Japan, and the Republic of Korea.

ASEAN-China FTA: The leaders of ASEAN and China considered the report of the ASEAN-China Expert Group on Economic Cooperation, set up upon the suggestion by Chinese Premier Zhu Rongji at their meeting in Singapore last year.

They endorsed the proposal for a Framework on Economic Cooperation and agreed to establish an ASEAN-China Free Trade Area within 10 years, with special and differential treatment and flexibility for the newer ASEAN members.

The agreement would also provide for an "early harvest" of benefits. With a combined market of 1.7 billion people, a free trade area between ASEAN and China would have a gross domestic product of $2 trillion and total trade of $1.23 trillion.

Discussions among officials on the scope and modality of the free trade area will commence this year.

The joint experts group estimates that the establishment of an ASEAN-China FTA could increase ASEAN's exports to China by 48 percent and China's exports to ASEAN by 55 percent. An FTA is also expected to boost ASEAN's GDP by 0.9 percent and China's GDP by 0.3 percent.

To promote the expansion of trade and investment between ASEAN and Japan, the leaders have endorsed the forging of a closer economic partnership.

A group of experts from ASEAN and Japan has been established to recommend measures on how to further enhance economic cooperation between the two sides. The report of the experts' group will be submitted to the next ASEAN-Japan summit in 2002.

ASEAN-Japan trade reached $113.6 billion in 2000.

The ASEAN leaders also proposed to explore with the Republic of Korea the possibility of establishing a free trade area between the two sides.

The leaders agreed to set up an experts group to study this matter. ASEAN-ROK trade reached $28.9 billion in year 2000.

In September 2001, the economic ministers of ASEAN and the Closer Economic Relations of Australia and New Zealand endorsed a framework to link the two groups economically through an AFTA-CER closer economic partnership.

They have also approved a work program for the implementation of the framework. Two-way trade between AFTA and CER amounted to $18.43 billion in 2000.

The realization of AFTA is not only a huge step towards regional economic integration in ASEAN; it is also an important building bloc for economic cohesion in the larger Asia-Pacific region, bringing together the economies of Northeast Asia and CER with those of Southeast Asia.