Open
Regionalism and Deeper Integration: The Implementation of ASEAN Investment
Area (AIA) and ASEAN Free Trade Area (AFTA)
Dr.
Lawan Thanadsillapakul
Part
3
The
New Framework Agreements of ASEAN
Although
ASEAN has been established for three decades, since 1968 (just ten years
after the creation of the EEC), it has not yet reached any significant
level of regional integration. It could hardly be claimed that the economic
co-operation programs implemented in ASEAN were a full success. ASEAN
remains just a loose regional grouping, with no supranational institutions
to provide common policy, or to stipulate any laws and regulations governing
ASEAN economic activities. Each member country still maintains its own
independent law and policies, its legal system, and its sovereign right
to control and regulate internal activities as well as conduct external
relationships, except those mutually agreed in the economic, social and
political co-operation programs. Every program implemented in ASEAN has
been agreed among the member countries on a consensus basis.
It
was only in 1992 that ASEAN began to develop the idea of establishing
the ASEAN Free Trade Area, a scheme for strengthening intra-regional economic
co-operation to respond to global change(9) . Resulting from the Fourth Summit Meeting, the Framework Agreement on
enhancing economic co-operation, better known as the Framework Agreement
on ASEAN Free Trade Area, was signed on 28th January 1992.
ASEAN
Free Trade Area (AFTA)
The
1992 framework agreement of AFTA bound ASEAN states to the establishment
of an ASEAN Free Trade Area initially within 15 years, beginning 1st January
1993. The implementation of AFTA was subsequently accelerated(10) .
ASEAN recognises the close interdependence of trade and investment, and
is aware that it can only attract inflows of trade and investment into
the region by its sound economy. Therefore, to strengthen intra-ASEAN
trade by accelerating the elimination of tariff and non-tariff barriers
to trade within the region to gain economies of scale would also help
to induce inflows of investment as well. It has been claimed that the
AFTA scheme conforms to the GATT(11) .
However, the practical legal issues of GATT compatibility of AFTA must
be carefully considered, and will be further discussed below.
Under
AFTA, the Common Effective Preferential Tariff (CEPT)(12) is the main instrument to encourage intra-ASEAN trade. The CEPT Agreement
allows ASEAN member Countries to reduce their tariffs to 0-5% on a MFN
basis among ASEAN members. Although this establishes a preferential arrangement
within ASEAN, it may nevertheless be acceptable to other countries because
of the benefits the larger regional market will create. So AFTA encourages
not just intra-ASEAN trade but also trade and investment from other countries.
From this point of view, AFTA can be regarded as "Open Regionalism",
i.e. economic integration within the region while welcoming outsiders.
However,
at the outset, the implementation of AFTA to ensure closer regional economic
integration was still far from real(13) . It was more like a special scheme for mutual economic co-operation than
a general regional economic integration. Even though in 1994 ASEAN adopted
the acceleration of the AFTA time frame, it was only at the 6th ASEAN
Summit, in Hanoi in 1998, that the ASEAN leaders adopted measures to accelerate
the region's economic integration and the completion of the AFTA even
faster(14) . Initially
only fifteen categories of products(15) identified in the AFTA Frame work Agreement to be included in the
CEPT scheme(16) were
subject to the fast track(17) tariff reduction towards a nil tariff. The time frame(18) for fully implementing AFTA has been set at 10 years for the more advanced
economies of ASEAN(19) and
15 years for the new ASEAN members.
Part
4
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(9)
This was clearly stated in the preamble of the Framework Agreement on
enhancing economic cooperation: "conscious of the rapid and pervasive
changes in the international political and economic landscape, as well
as both challenges and opportunities yielded thereof, which need more
cohesive and effective performance of intra-ASEAN economic co-operation".
(10)
See ASEAN Update vol.1/1999, 1st quarter of 1999. See also Statement on
Bold Measures, the Heads of ASEAN countries agreed to accelerate the AFTA,
the original six countries would advance the implementation of AFTA by
one year from 2003 to 2002. They also agreed to achieve a minimum of 90%
of their total tariff lines with tariffs of 0-5% by the year 2002, which
would account for 90% of intra-ASEAN trade.
(11)
"AFTA is a GATT-consistent and an outward looking arrangement. No
trade barriers are raised against non-ASEAN economies as a result of the
formation of AFTA. Give the open structure of ASEAN economies, the expansion
of production in an ASEAN regional market would enhance ASEAN's linkages
with the world and generate greater opportunities for exporters outside
the region". Press Statement, The Third AFTA Council Meeting, Indonesia,
11th December 1992.
(12)
Art. 1 of the Agreement on the Common Effective Preferential Tariff (CEPT)
scheme for ASEAN Free Trade Area states that "CEPT" means the
Common Effective Preferential Tariff, and it is an agreed effective tariff,
preferential to ASEAN, to be applied to goods originating from ASEAN Member
States, and which have been identified for inclusion in the CEPT Scheme
in accordance with Arts. 2 (5) and 3.
(13)
There were so many categories of products excluded from the list as an
exclusive list. Agriculture has been regarded as sensitive and therefore
been put aside. There were also protests from within the affected countries
where products were included in the list for tariff reduction by the affected
producers. For instance, the palm growers and palm oil industry in the
South of Thailand and in Malaysia feared to lose their dominant market
share, and their tariff protection to the free entry of product from neighboring
countries once AFTA is fully implemented.
(14)
See Statement on Bold Measures in Annex 11.
(15)
They are vegetable oils, cement, chemicals, pharmaceuticals, fertilizer,
plastics, rubber products, leather products, pulp, textiles, ceramic and
glass products, gems and jewellery, copper cathodes, electronics, and
wooden and rattan furniture.
(16)
Agreement on the Common Preferential Tariff (CEPT) scheme for the ASEAN
Free Trade Area (AFTA), ASEAN Documents series 1991-1992 (Notified to
the GATT in L/7111). CEPT is the primary instrument for implementing AFTA.
However, all products under the PTA (Preferential Trading Arrangement)
which are not transferred to the CEPT Scheme shall continue to enjoy the
MOP (Margin of Preference) existing as at 31st December 1992 (CEPT Agreement,
Art. 2 (6). PTA was the initial agreement providing for economic cooperation
in ASEAN. This agreement provides that the member states of the ASEAN
are to extend trade preferences to each other in accordance with the provisions
of the agreement and the rules, regulations and decisions agreed within
its framework.
(17)
The fast track is to reduce tariff rates above 20% to 0-5% by 1st January
2000, and to reduce tariff rates at or below 20% to 0-5% by 1st January
1998. The normal track is to reduce tariff rates above 20% to 20% by 1st
January 1998 and subsequently from 20% to 0-5% by 1st January 2003, and
to reduce tariff rates at or below 20% to 0-5% by 1st January 2000.
(18)
The time frame of 15 years for implementing AFTA specified in the original
framework agreement adopted in 4th ASEAN Summit has been changed at the
Meeting in September 1994. AFTA members agreed to implement AFTA over
10 years instead and to include unprocessed agricultural goods, which
were originally excluded from the agreement. See "Ministers accelerate
implement of AFTA", ASEAN UPDATE, October 1994, pp. 1-3.
(19)
Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. |