A tiny but important golf course needed to win the game

A tiny but important golf course needed to win the game

Hadi Soesastro, CSIS, Jakarta

The ASEAN Free Trade Area (AFTA) at last became a reality on
Jan. 1, 2002 -- on paper, anyway.

This fact, however, is not to be taken lightly.

A decade ago, ASEAN leaders decided to establish a free-trade
area, a decision that received many skeptical reactions.

Some worried that AFTA might be just another pointless trade
agreement, just like the ASEAN PTA (Preferential Trading
Agreement), which was signed into existence in 1977.

AFTA has its official seal of approval in a document less than
10 pages thick.

This document has fallen short of clarifying how its final
goals will be met, as it simply refers to CEPT (Common Effective
Preferential Tariffs) as its method of achieving its target.

This is quite a contrast with NAFTA (the North American Free
Trade Area), established by the United States, Canada and Mexico
in 1993. The document marking that agreement is a full one
thousand pages thick.

Hence the cynical comment that AFTA stands for "Action First,
Talk After" -- that is, getting things agreed to first with the
formulation coming later.

As it happened, the establishment of AFTA, scheduled
originally for 2008, was accelerated to 2003 and then to 2001.

Perhaps this is the uniquely ASEAN way of getting things done.

Whatever may be said about AFTA, since Jan. 1, 2001, the trade
zone -- including six previous members of ASEAN Brunei
Darussalam, the Philippines, Indonesia, Malaysia, Singapore, and
Thailand -- has been almost completely liberalized.

As originally agreed, Indonesia will postpone the lowering of
its tariffs for 66 products until 2003, including petrochemicals
and plastics. Malaysia will do likewise until 2005 with respect
to automotive products.

Over 90 percent of ASEAN-6 tariff headings are already placed
in the Inclusion List (IL), with tariffs ranging between zero and
five percent in 2002. Most of these tariff headings have been
made zero percent; it has also been agreed that, in 2010, all
tariffs will be reduced to zero percent.

Today, the average tariffs of the tariff headings in IL are
already very low, 2.91 percent. Compare this with the average
tariffs of 12.76 percent when AFTA was first launched in 1993.

However, there is the Temporary Exclusion List (TEL) for
temporarily excluded products in the AFTA.

Those products were gradually shifted into the IL beginning in
1996. There are products in the Sensitive List (SL), mostly
consisting of agricultural products like rice and sugar.

Those products must enter the IL by 2010. Products in the
General Exception List (GEL), including dangerous goods like
ammunition and environmentally hazardous materials, will remain
in the exception list.

Thus, the import tariff is almost eliminated.

The presence of non-tariff barriers still become a problem,
however. The AFTA includes the elimination of non-tariff
barriers, but the details of this process have never been given.

Perhaps the process is expected to run based on good will.

But exporters usually complain when they are facing non-tariff
barriers, especially suddenly imposed barriers.

There is palpable fear that a decrease in tariffs will be
followed by the imposition of tariff barriers. It is also
necessary to develop various dispute settlement mechanisms,
including anti-dumping regulations.

The procedure to obtain permits for import with the AFTA
preferential tariff also need simplification.

So far, only five percent of all inter-ASEAN trade has applied
to the preferential tariff rates, probably because it is a costly
and time-consuming procedure.

Besides that, perhaps the AFTA tariff is not far below the
tariff for the most favored nation (MFN) status implemented by
all members of the World Trade Organization (WTO).

The ASEAN countries have continuously lowered their MFN
tariffs. The acceleration of the AFTA process may widen the
tariff differential, and stimulate the use of the AFTA tariff.

The AFTA is actually not aimed at promoting inter-ASEAN trade,
but mainly intended to make the ASEAN economy more competitive,
and the ASEAN countries more attractive to global investment.

ASEAN wants to become one of the world's production and export
platforms.

If inter-ASEAN trade barriers are eliminated, the ASEAN region
consisting of countries with different comparative advantages
will become a production zone highly attractive to international
investors.

Various multinational companies have also come to recognize
that idea and begun to rationalize their production in the ASEAN
region both to make their products more competitive while
stimulating their production activities.

To ensure optimum results, the AFTA needs to be expanded to
services and investment in an integrated program. It is necessary
to bolster an AFTA-plus idea.

The AFTA also constitutes the first step of ASEAN economies
to integrate themselves into the world economy.

Integrated efforts will better guarantee the likelihood of
making a success than individual efforts. The implementation of
the AFTA is an exercise in trade liberalization.

Ideally, we should try the concept of new trade with our
neighbors before implementing it as practice in the global arena.

Similarly, if we want to play golf and compete with
professionals like Tiger Woods, serious exercise is required.

The Asia-Pacific Economic Cooperation (APEC) also needs an
exercise in trade liberalization through what is called concerted
unilateral liberalization.

APEC functions as a driving range for each of its member
states to improve their strokes while glancing at their sides to
examine the technique applied by their rivals.

At the moment, AFTA can be seen like a mini-golf course --
verdant and beautiful, but in need of some work before it can
compete on a global scale.