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.