ASEAN's free trade zone pokes along

ASEAN's free trade zone pokes along

BANGKOK (DPA): When Southeast Asia's economic ministers
gather in Yangon (Rangoon) on May 1-2 for their special "retreat"
session, one of the key topics up for debate will be Malaysia's
refusal to slash tariffs on made-in-ASEAN auto imports.

On Jan. 1, 2000, the Association of Southeast Asian Nations
(ASEAN) entered their final lap of comprehensive tariff cuts on
imports from fellow member states to less than 5 per cent by the
year 2002 under the ASEAN Free Trade Area (AFTA scheme.

This year the six original ASEAN members - Brunei, Indonesia,
Malaysia, the Philippines, Singapore and Thailand - slashed
tariffs to zero-to-5 per cent on at least 85 per cent of all
tariff lines on imported goods originating from ASEAN, including
many sensitive items that had previously been on so-called
"exclusion" lists.

Some of those items, however, have proven to be still too
sensitive.

For instance, Malaysia is stalling on dropping its tariffs on
imported cars from ASEAN, especially from neighboring Thailand,
which has emerged as the region's automotive hub, exporting
120,000 vehicles to the world last year.

An influx of made-in-Thailand vehicles could seriously
undermine domestic sales of Proton cars, Malaysia's national car
which has long enjoyed government protection.

"Our position is that you cannot force the other members to
start tariff reductions if they are not ready, but in doing so
they should provide some kind of compensation, otherwise
countries would get away scot-free," said Karun Kittisataporn,
director-general of Thailand's Department of Business Economics.

Unquestionably, over the past seven years there has been a
dramatic increase in intraregional trade. Thailand's exports to
ASEAN increased 142 per cent between 1992 and 1999, Malaysia's by
122 per cent, Singapore's by more than 114 per cent and the
Philippines's by a whopping 857 per cent.

Most of the intra-ASEAN trade thus far appears to be in parts
and components destined for assembly lines in factories owned by
multinationals in Southeast Asia.

"The growth rates in the Philippines trade with ASEAN have
been largely propelled by export growth, particularly
semiconductor devices which account for almost 73 per cent of
total exports to ASEAN," said the Philippines Trade and Industry
undersecretary Tomas Aquino.

There are signs that multinationals are also beginning to reap
AFTA benefits via consolidations of their manufacturing
facilities in the region.

U.S.-based Johnson & Johnson, for example, in March announced
its decision to make Thailand its regional hub for sanitary
napkin and talcum powder manufacturing, shutting down existing
plants in the Philippines and Malaysia in the process as it can
now take advantage of AFTA's lower intraregional tariffs.

While multinationals benefit, domestic-oriented, locally-owned
industries in petrochemicals, construction materials, textiles
and other light industries still see AFTA as a threat.

"These industries said they would be severely affected by AFTA
as most of them are not prepared to compete against countries
which have lower power and labor costs as well as better
infrastructure," noted Aquino.

The threat is real for industries that have long enjoyed
government protection, such as local automobile manufacturing.

With the exception of Singapore and Brunei, each ASEAN country
has tried to attract auto manufacturers to its shores to assembly
vehicles for the local market, thus creating jobs and laying the
foundation for a domestic auto parts and components industry.

These nationalistic policies have long been criticized by the
auto industry giants, who argue that the constraints on imports
raise local costs, penalize customers and bog down sales.

AFTA has yet to rationalize this sensitive sector.