'Action first, talk after'

Hadi Soesastro, CSIS, Jakarta

ASEAN Free Trade Area (AFTA) at last became a reality on Jan. 1, 2002 -- on paper, anyway. This fact, however, is not to be trifled with.

A decade ago, ASEAN leaders decided to establish a free-trade area and this decision received many skeptical reactions. Some worried that AFTA might be just another futile trade agreement, just like ASEAN PTA (Preferential Trading Agreement), agreed upon in 1977.

AFTA has got its official seal of agreement in a document less than 10 pages thick. The document has also come short of mentioning how its final goal is to be attained as it simply refers to CEPT (Common Effective Preferential Tariffs) as its method of achieving the target.

This is quite unlike NAFTA (North American Free Trade Area), which is established by the United States, Canada and Mexico. The document marking its establishment is a thousand pages thick.

Hence the cynical comment that AFTA stands for "Action First, Talk After", a reference towards getting things agreed 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 involving six old 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 tariffs for 66 products until 2003, including petrochemicals and plastics. Malaysia will do so until 2005 with respect to some 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 this 2002. Most of these tariff headings have been made zero percent and it has also been agreed that in 2010 all will be zero percent.

Today the average tariffs of the tariff headings in IL are already very low, namely 2.91 percent. Compare this with the average tariffs of 12.76 percent when AFTA was launched in 1993/94.

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

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

Those products must have entered the IL by 2010. Products in the General Exception List (GEL) including dangerous goods like ammunition and environment spoiling products will remain in the exception list. Thus, the import tariff is almost eliminated.

The present of non-tariff barriers still becomes a problem. The AFTA includes the elimination of non-tariff barriers, but the detail of the process has 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 the suddenly imposed barriers. There is fear that the decrease in tariff 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 intra-ASEAN trade has applied the preferential tariff, probably because of the procedure that needs time and cost. Apart from that, perhaps the AFTA tariff is not far below the tariff for the most favored nation (MFN) implemented by all members of the World Trade Organization (WTO).

The ASEAN countries have continuously lowered their MFN tariff. 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 intra-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 intra-ASEAN trade barriers are eliminated, the ASEAN region consisting of countries with different comparative advantages will become a production zone attractive to the world investors.

Various multinational companies have also come to that idea and begun to rationalize their production in the ASEAN region so as to make their products highly competitive and to stimulate their production activities.

To ensure the optimum result, 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 more guarantee the possibility of making a success than individual efforts. The implementation of the AFTA is an exercise for trade liberalization. We must try the concept in trade with our neighbors first before implementing the concept in international trade.

Similarly, if we want to play golf and compete with professional golfers like Tiger Woods, a 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 to improve their strokes while glancing at their sides to examine the technique applied by their rivals.

The AFTA can be regarded as a mini-golf course. It is small but beautiful and needed in striving to play a role in the global economy.