'Action first, talk after'

'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.