ASEAN may go slow on free trade goals
ASEAN may go slow on free trade goals
SINGAPORE (Reuters): Leaders of the Association of Southeast Asian Nations (ASEAN) are expected to talk loudly about the need to meet trade liberalization goals when they meet in Hanoi next week but quietly agree to allow the process to slow.
Analysts say the region's 18-month-old financial crisis will not derail ASEAN's commitment to achieve tariffs of no more than 5 percent within the nine-country grouping by the year 2003. However, liberalization schedules towards this date may be allowed to slide.
"It's going to be tough for many of the (ASEAN) economies to be aggressive in terms of the lifting of restrictions and reducing trade barriers," said Andrew Fung, regional Treasury economist at Standard Chartered Bank in Singapore.
"But it is not going to be a fatal blow to liberalization," Fung said.
Under the current plan for the ASEAN Free Trade Area (AFTA), tariffs are to be cut to between zero and 5 percent by the year 2003. More than 46,000 tariff lines have already been cut, representing some 83 percent of intra-ASEAN trade.
"Currently the way the program works is they've been phasing all these different tariff lines into the scheme at a ceiling tariff rate of 20 percent per year," said Peter Baldwin, director of consultancy group Intercedent Asia.
"They've done three years now and of course they've left all the hard stuff until the end," he said.
Some analysts believe that with the spotlight on ASEAN to show its commitment to the goal of free trade, the leaders will endorse a goal to drop tariffs to a flat rate of zero percent by 2003 instead of a zero to 5 percent range.
But to avoid any dispute within the region, the schedule to implement this measure will be made "voluntary".
"I think they are going to underline their commitment to the lifting of trade restrictions, but we are going to see very few details in terms of timing," said Standard Chartered's Fung.
Aside from the overall free trade goal, the ASEAN meeting will be scrutinized by Asian business for any changes to the details of the AFTA scheme.
"The big thing people are looking for is to bring forward the switch of products from the temporary exclusion list onto the inclusion list," said Baldwin.
"As soon as products are off the exclusion list, they don't have any common effective preferential tariff. When they come into the scheme, the maximum ceiling rate is 20 percent, which is a big drop for some products, like auto parts," he said.
Another issue is the World Trade Organization's (WTO) Trade Related Investment Measures, or TRIMS, which cover local content quotas. Under WTO plans, most local content requirements are due to be abolished by January 1, 2000.
"All the ASEAN countries in trouble on this one. The WTO does carry a big stick. As most Asian countries are export oriented, their export partners are going to make a fuss," Baldwin said.
In the discussions over the tariff rate targets, the products to be included and excluded and the local content levels, one key issue is likely to be raised most and that is the impact of any new measures on employment.
Since the regional financial crisis began in July 1997, most ASEAN nations have plunged into recession and unemployment levels have soared, particularly in places like Indonesia.
"If your sewing machine industry is going to be wiped out because of AFTA, then the industry lobby against AFTA becomes stronger and stronger," said Intercedent's Baldwin.
"It is pretty reasonable to assume that they (ASEAN) would like to protect, if possible, their own domestic economies," said Fong Cheng Hong, a senior vice president at Nomura Singapore.
But Fong did not believe that economic nationalist pressures would derail the trade liberalization process
"One of the things about Asia, especially now with economies in bad shape, is we need a lot of money for refinancing of the banking and corporate sector, so continued liberalization of trade is going to bring back the international investor and that's crucial for ASEAN's recovery," she said.