ASEAN Free Trade Area

ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the Association of Southeast Asian Nations supporting local manufacturing in all ASEAN countries.

The AFTA agreement was signed on 28 January 1992 in Singapore. When the AFTA agreement was originally signed, ASEAN had six members, namely, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia in 1999. AFTA now comprises the ten countries of ASEAN. All the four latecomers were required to sign the AFTA agreement in order to join ASEAN, but were given longer time frames in which to meet AFTA's tariff reduction obligations.

The primary goals of AFTA seek to:
*Increase ASEAN's competitive edge as a production base in the world market through the elimination, within ASEAN, of tariffs and non-tariff barriers; and
*Attract more foreign direct investment to ASEAN.

The primary mechanism for achieving the goals given above is the Common Effective Preferential Tariff (CEPT) scheme, which established a schedule for phased initiated in 1992 with the self-described goal to increase the "region’s competitive advantage as a production base geared for the world market".

History

The proposal to set up a Free Trade Area in Asean was first mooted by the Thai Prime Minister Anand Panyarachun and the Thai proposal was agreed upon with amendments during the ASEAN Seniors Economic Official Meeting (AEM) in Kuala Lumpur. In January 1992, the ASEAN members then signed the Singapore Declaration at the heart of which was the creation of AFTA in 15 years. This is a comprehensive program of tariff reduction in the region, which is to be carried out in phases through the year 2008. This deadline was subsequently moved forward and AFTA became fully operational on January 1, 2003.

Over the course of the several years, the initial program of tariff reductions was broadened and accelerated and other "AFTA Plus" activities were initiated. This includes efforts to eliminate non-tariff barriers, harmonization of customs nomenclature, valuation, and procedures and development of common product certification standards among others.

With a population of over 550 million, companies now can exploit the opportunities presented by an integrated market of increasingly prosperous consumers.

The Common Effective Preferential Tariff (CEPT) scheme

Unlike the EU, AFTA does not apply a common external tariff on imported goods. Each ASEAN member may impose tariffs on goods entering from outside ASEAN based on its national schedules. However, for goods originating within ASEAN, ASEAN members are to apply a tariff rate of 0 to 5 percent (the more recent members of Cambodia, Laos, Myanmar and Vietnam, aka CMLV countries, were given additional time to implement the reduced tariff rates). This is known as the Common Effective Preferential Tariff (CEPT) scheme.

ASEAN members have the option of excluding products from the CEPT in three cases: 1.) Temporary exclusions; 2.) Sensitive agricultural products; 3.) General exceptions.Temporary exclusions refer to products for which tariffs will ultimately be lowered to 0-5%, but which are being protected temporarily by a delay in tariff reductions.

Sensitive agricultural products include commodities such as rice. ASEAN members have until 2010 to reduce the tariff levels to 0-5%.

General exceptions refer to products which an ASEAN member deems necessary for the protection of national security, public morals, the protection of human, animal or plant life and health, and protection of articles of artistic, historic, or archaeological value. ASEAN members have agreed to enact zero tariff rates on virtually all imports by 2010 for the original signatories, and 2015 for the CMLV countries.

Rule of Origin

The CEPT only applies to goods originating within ASEAN. The general rule is that local ASEAN content must be at least 40% of the FOB value of the good. The local ASEAN content can be cumulative, that is, the value of inputs from various ASEAN members can be combined to meet the 40% requirement. The following formula is applied: Raw material cost + Direct labor cost + Direct overhead cost + Profit + Inland transport cost x 100% FOB value

However, for certain products, special rules apply:
* Change in Chapter Rule for Wheat Flour;
* Change of Tariff Sub-Heading for Wood-Based Products;
* Change in Tariff Classification for Certain Aluminum and Articles thereof. The exporter must obtain a “Form D” certification from its national government attesting that the good has met the 40% requirement. The Form D must presented to the customs authority of the importing government to qualify for the CEPT rate. Difficulties have sometimes arisen regarding the evidentiary proof to support the claim, as well how ASEAN national customs authorities can verify Form D submissions. These difficulties arise because each ASEAN national customs authority interprets and implements the Form D requirements without much coordination.

Administration

Administration of AFTA is handled by the national customs and trade authorities in each ASEAN member. The ASEAN Secretariat has authority to monitor and ensure compliance with AFTA measures, but has no legal authority to enforce compliance. This has led to inconsistent rulings by ASEAN national authorities. The ASEAN Charter is intended to bolster the ASEAN Secretariat’s ability to ensure consistent application of AFTA measures.

ASEAN national authorities have also been traditionally reluctant to share or cede sovereignty to authorities from other ASEAN members (although ASEAN trade ministries routinely make cross-border visits to conduct on-site inspections in anti-dumping investigations). Unlike the EU or NAFTA, joint teams to ensure compliance and investigate non-compliance have not been widely used. Instead, ASEAN national authorities must rely on the review and analysis of other ASEAN national authorities to determine if AFTA measures such as rule of origin are being followed. Disagreements may result between the national authorities. Again, the ASEAN Secretariat may help mediate a dispute but has no legal authority to resolve it.

ASEAN has attempted to improve customs coordination through the implementation of the ASEAN Single Window project. The ASEAN Single Window would allow importers to submit all information related to the transaction to be entered electronically once. This information would then be shared with all other ASEAN national customs authorities.

Dispute Resolution

Although these ASEAN national customs and trade authorities coordinate among themselves, disputes can arise. The ASEAN Secretariat has no legal authority to resolve such disputes, so disputes are resolved bilaterally through informal means or through dispute resolution.

An ASEAN Protocol on Enhanced Dispute Settlement Mechanism governs formal dispute resolution in AFTA and other aspects of ASEAN. ASEAN members may seek mediation and good offices consultations. If these efforts are ineffective, they may ask SEOM to establish panel of independent arbitrators to review the dispute. Panel decisions can be appealed to an appellate body formed by the ASEAN Economic Community Council.

The Protocol has almost never been invoked because of the role of SEOM in the dispute resolution process. SEOM decisions require consensus among all ASEAN members, and since both the aggrieved party and the alleged transgressor are both participating in SEOM, such consensus cannot be achieved. This discourages ASEAN members from invoking the Protocol, and often they seek dispute resolution in other fora such as the WTO or even the International Court of Justice. This can also be frustrating for companies affected by an AFTA dispute, as they have no rights to invoke dispute resolution yet their home ASEAN government may not be willing to invoke the Protocol. The ASEAN Secretary General has listed dispute resolution as requiring necessary reform for proper administration of AFTA and the AEC.

Further Trade Facilitation Efforts

New initiatives to close the development gap and expand trade among members of ASEAN are at the forefront of policy discussion. According to a 2008 research brief published by the World Bank as part of its [http://econ.worldbank.org/external/default/main?menuPK=1697684&pagePK=64168176&piPK=64168140&theSitePK=1697658 Trade Costs and Facilitation Project] , ASEAN members have the potential to reap significant benefits from investments in further trade facilitation reform, due to the comprehensive tariff reform already realized through the ASEAN Free Trade Agreement.

This new analysis suggests examining two key areas, among others: port facilities and competitiveness in the Internet services sector. Reform in these areas, the report states, could expand ASEAN trade by up to 7.5 percent ($22 billion) and 5.7 percent ($17 billion), respectively. By contrast, cutting applied tariffs in all ASEAN members to the regional average in Southeast Asia would increase intra-regional trade by about 2 percent ($6.3 billion). [ [http://siteresources.worldbank.org/EXTTRADECOSTANDFACILITATION/Resources/Deeper_Integration_ASEAN_Issue_Brief_Jul08.pdf?resourceurlname=Deeper_Integration_ASEAN_Issue_Brief_Jul08.pdf "Deeper Integration in ASEAN: Why Transport and Technology Matter for Trade,"] John S. Wilson & Benjamin Taylor; Trade Facilitation Reform Issue Brief, The World Bank. 2008.]

Membership

Countries that agree to eliminate tariffs among themselves:
*BRU
*IDN
*MAS
*PHL
*SIN
*THA

Regular Observers
*PNG
*flagicon|East Timor East Timor

Countries, to join in 2012:
*MMR
*CAM
*LAO
*VIE

The most recent ASEAN meeting was observed also by :
*PRC and PAK
*IND
*KOR
*JPN
*AUS
*NZL

References

External links

* [http://www.worldtradelaw.net/fta/agreements/afta.pdf ASEAN Free Trade Agreement]
* [http://www.chinaaseantrade.com China Asean Free-Trade]

Association of Southeast Asian Nations (ASEAN)