asean's trade policy

ASEAN’s Trade Policy

De La Salle University - Manila


Session Outline1. Brief overview of ASEAN2. Brief history of ASEAN’s trade

policy3. ASEA Free Trade Area (AFTA)4. ASEAN’s Trade Performance 1993-

20055. Lessons from AFTA

2


Overview: ASEANASEAN – Association of South East Asian Nations

• Established in 8 August 1967 in Bangkok• Original members: Indonesia, Malaysia, Philippines, Singapore, Thailand

Brunei Darussalam – 8 Jan 1984 Vietnam – 28 July 1995 Lao PDR – 23 July 1997 Myanmar – 23 July 1997 Cambodia – 30 April 1999

• Added Members

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Overview: ASEANForces behind formation of ASEAN

1. Political instability

• Territorial disputes between some of the member nations

• External communist threats following Vietnam war

• Domestic communist insurgency problems

2. Regional security issues

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Overview: ASEANObjectives of ASEAN 1. to accelerate economic growth, social progress and cultural development in the region2. to promote peace & stability

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Overview: ASEAN

• ASEAN has gone a long way• It has taken center stage during the past few years in view of its emerging role as the hub of bilateral & regional FTAs in East Asia

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Figure 1Rate of GDP Growth in ASEAN 5, 1996 -

2004

Source: ASEAN Statistical Yearbook, 2005 8De La Salle University - Manila

Figure 2Rate of GDP Growth of BCLMV, 1996 -

2004

Source: ASEAN Statistical Yearbook, 2005 9De La Salle University - Manila

Table 1GDP per Capita at Current Market Prices in USD, 1996 - 2004

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ASEAN’s trade policy: background

• Before 1990s, inconceivable to talk about economic integration, much less a free trade area (FTA), in Southeast Asia.

Economic structures are competitive rather than complementary.

• Why?

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Similar resource endowments and levels of technological development; thus, resulting in the production and export of similar primary and labor-intensive products. Heavily dependent on developed countries (particularly USA, Europe, Japan) for their export markets and sources of investment and technology.


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• ASEAN leaders avoided the term “integration” and preferred “cooperation” during official discussions and meetings until the late 1980s. • It was a major political decision then when the leaders finally decided to establish the ASEAN Free Trade Area (AFTA) in 1992.


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AFTA: its beginning

Economic cooperation was never part of ASEAN’s agenda, until the formation of the ASEAN Preferential Trading Area (PTA) in 1977

Margin of preferences were granted to imports among ASEAN members PTA, however, did not promote intra-ASEAN trade. Implementation problems

• AFTA established in 1992, a major political decision for ASEAN Leaders

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What led to AFTA?Internal factors• Political stability & security in the region

Domestic efficiency, improved competitiveness & high growth rates Idea of regional integration became more acceptable

• Domestic policy reforms since the mid-1980s thru trade liberalization & export promotion

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What led to AFTA?External factors• Rise of regional trading arrangements in North America & Europe

• End of Cold War brought many new competitors to the ASEAN in terms of exports and sources of foreign direct investment (FDI)

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Goals of AFTA To increase ASEAN’s competitive edge as a production base for the world market

Mechanism – Common Effective Preferential Tariff (CEPT), where intra-regional tariff rates will be reduced to 0-5% within 15 years beginning 1993

To establish a free trade area, with ASEAN members giving a common preferential tariff to each other while at the same time, giving each member a free hand on the tariff rate they will grant to non-members

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AFTA achieved in 2002

• Deadline has been accelerated – from 2008 to 2002• Coverage has been expanded• Scope has been widened: AFTA-plus measures

Harmonization of standards Reciprocal recognition of tests & certification of products Investment/services liberalization

Goal deepened to zero tariff by 2010/2015

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Trend of ASEAN 6 Total Exports and Imports, 1993 - 2004

Figure 3

Source: ASEAN Statistical Yearbook, 200521


Trend of ASEAN 6 Total Exports and Imports, 1993 - 2004

Figure 4


Table 3 Intra - + Extra-ASEAN Exports, 2005

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Intra-ASEAN Extra-ASEAN

Country Value Share to Value Share to

country total country total

Brunei Darrussalam 1,529.0 24.0 4,840.3 76.0

Cambodia 144.5 4.7 2,947.0 95.3

Indonesia 15,823.7 18.5 69,836.2 81.5

Lao, PDR 147.6 84.8 26.5 15.2

Malaysia 36,633.7 26.1 103,836.8 73.9

Myanmar 1,559.7 49.9 1,564.1 50.1

The Philippines 7,149.9 17.3 34,104.7 82.7

Singapore 71,976.4 31.3 157,827.7 68.7

Thailand 23,867.0 21.8 85,755.6 78.2

Viet Nam 5,030.9 17.6 23,545.6 82.4

ASEAN 163,862.5 25.3 484,284.6 74.7

Table 4 Intra - + Extra-ASEAN Imports, 2005

24De La Salle University - Manila

Country

Intra-ASEAN Extra-ASEAN

Value Share to Value Share to

country total country total

Brunei Darrussalam 738.5 49.1 764.6 50.9

Cambodia 1,026.8 36.4 1,797.9 63.6

Indonesia 17,329.5 30.0 40,371.4 70.0

Lao, PDR 362.4 51.6 339.5 48.4

Malaysia 29,164.0 25.5 85,049.1 74.5

Myanmar 896.6 54.9 736.2 45.1

The Philippines 8,874.3 18.7 38,543.9 81.3

Singapore 52,148.6 26.1 148,014.2 73.9

Thailand 21,552.4 18.3 96,438.5 81.7

Viet Nam 8,937.7 27.4 23,656.2 72.6

ASEAN 141,030.7 24.5 435,711.6 75.5


ASEAN 6 Export Market, 1993 - 2004Figure 5

Source: ASEAN Statistical Yearbook, 2005 25


ASEAN Import Origin, 2004

Figure 6



Trend of ASEAN 6 Intra ASEAN Exports by Country, 1993 - 2004

Figure 7



Trend of ASEAN 6 Intra - ASEAN Imports by Country, 1993 - 2004

Figure 8


• Domestic policy environment AFTA’s principle of open regionalism

• Complementary vs substitutability argument

Similarity in economic structure injects a new competitive spirit and dynamism into the regional economy and generates grater opportunities for intra-industrial trade and specialization

Lessons from AFTA

De La Salle University - Manila29

• Framework of AFTA Free trade area (in contrast to customs union) Gradual approach of expanding scope AFTA-Plus measures

Lessons from AFTA


• Political will and commitment- encouraged investors to have longer-term perspective on the region

• The ASEAN Way Go-slow approach was necessary

during the formative years of AFTA

Lessons from AFTA


• Austria, M., 2003. “AFTA: Lessons Learned and Challenges Ahead”, in Park & Yavaprabhas (editors), Regional Cooperation & Identity Building in East Asia, Korean Assoc. of Southeast Asian Studies, Korea.

• Austria, M. 2006. “ASEAN’s Extra Regional Lingkages: Implications for an East Asian Community”, in Pong Ping, Siew Yean & Yu (editors), The Emerging East Asian Community, Universiti Kebangsaan Malaysia, Malaysia.

References



CEPT All tariff lines included except:

General Exception List (GEL) – covering products that were permanently excluded for the protection of national security, public morals, human, animal or plant life, and articles of artistic or archaeological value

Temporary Exclusion List (TEL) – covering products to be phased into CEPT tariff reduction schedule within a given time frame

• Sensitive List (SL) – covering agricultural products

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