ASEAN Free Trade Area
Overview
 
ASEAN Free Trade Area is a trade bloc
Trade bloc
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, are reduced or eliminated among the participating states.-Description:...

 agreement by the Association of Southeast Asian Nations
Association of Southeast Asian Nations
The Association of Southeast Asian Nations, commonly abbreviated ASEAN rarely ), is a geo-political and economic organization of ten countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has...

 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
Brunei
Brunei , officially the State of Brunei Darussalam or the Nation of Brunei, the Abode of Peace , is a sovereign state located on the north coast of the island of Borneo, in Southeast Asia...

, Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...

, Malaysia, Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...

, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...

 and Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...

. Vietnam
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...

 joined in 1995, Laos
Laos
Laos Lao: ສາທາລະນະລັດ ປະຊາທິປະໄຕ ປະຊາຊົນລາວ Sathalanalat Paxathipatai Paxaxon Lao, officially the Lao People's Democratic Republic, is a landlocked country in Southeast Asia, bordered by Burma and China to the northwest, Vietnam to the east, Cambodia to the south and Thailand to the west...

 and Myanmar
Myanmar
Burma , officially the Republic of the Union of Myanmar , is a country in Southeast Asia. Burma is bordered by China on the northeast, Laos on the east, Thailand on the southeast, Bangladesh on the west, India on the northwest, the Bay of Bengal to the southwest, and the Andaman Sea on the south....

 in 1997 and Cambodia
Cambodia
Cambodia , officially known as the Kingdom of Cambodia, is a country located in the southern portion of the Indochina Peninsula in Southeast Asia...

 in 1999.
Encyclopedia
ASEAN Free Trade Area is a trade bloc
Trade bloc
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, are reduced or eliminated among the participating states.-Description:...

 agreement by the Association of Southeast Asian Nations
Association of Southeast Asian Nations
The Association of Southeast Asian Nations, commonly abbreviated ASEAN rarely ), is a geo-political and economic organization of ten countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has...

 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
Brunei
Brunei , officially the State of Brunei Darussalam or the Nation of Brunei, the Abode of Peace , is a sovereign state located on the north coast of the island of Borneo, in Southeast Asia...

, Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...

, Malaysia, Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...

, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...

 and Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...

. Vietnam
Vietnam
Vietnam – sometimes spelled Viet Nam , officially the Socialist Republic of Vietnam – is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea –...

 joined in 1995, Laos
Laos
Laos Lao: ສາທາລະນະລັດ ປະຊາທິປະໄຕ ປະຊາຊົນລາວ Sathalanalat Paxathipatai Paxaxon Lao, officially the Lao People's Democratic Republic, is a landlocked country in Southeast Asia, bordered by Burma and China to the northwest, Vietnam to the east, Cambodia to the south and Thailand to the west...

 and Myanmar
Myanmar
Burma , officially the Republic of the Union of Myanmar , is a country in Southeast Asia. Burma is bordered by China on the northeast, Laos on the east, Thailand on the southeast, Bangladesh on the west, India on the northwest, the Bay of Bengal to the southwest, and the Andaman Sea on the south....

 in 1997 and Cambodia
Cambodia
Cambodia , officially known as the Kingdom of Cambodia, is a country located in the southern portion of the Indochina Peninsula in Southeast Asia...

 in 1999. AFTA now comprises 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
    Foreign direct investment
    Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...

     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

A proposal to set up a Free Trade Area in Asean was first mooted by the Thai
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...

 Prime Minister Anand Panyarachun
Anand Panyarachun
Anand Panyarachun was Thailand's Prime Minister twice, between 1991–1992 and once again in 1992. He was effective in initiating economic and political reforms, one of which was the drafting of Thailand's "Peoples' Constitution", which was promulgated in 1997 and abrogated in 2006...

, which was agreed upon with amendments during the ASEAN Seniors Economic Official Meeting (AEM) in Kuala Lumpur
Kuala Lumpur
Kuala Lumpur is the capital and the second largest city in Malaysia by population. The city proper, making up an area of , has a population of 1.4 million as of 2010. Greater Kuala Lumpur, also known as the Klang Valley, is an urban agglomeration of 7.2 million...

. In January 1992, the ASEAN members 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 1 January 2003.

Over the course of 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, harmonisation of customs nomenclature, valuation, and procedures and development of common product certification standards.

The Common Effective Preferential Tariff (CEPT) scheme

Unlike the EU, AFTA does not apply a common external tariff
Common external tariff
When a group of countries form a customs union they must introduce a common external tariff. The same customs duties, import quotas, preferences or other non-tariff barriers to trade apply to all goods entering the area, regardless of which country within the area they are entering...

 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, also known as 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

Efforts to close the development gap and expand trade among members of ASEAN are key points of policy discussion. According to a 2008 research brief published by the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...

 as part of its 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 realised 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).

Membership

Countries that agree to eliminate tariffs among themselves:

Regular Observers

The most recent ASEAN meeting was observed also by :

ASEAN Plus Three

ASEAN Plus Three (APT) is a forum that functions as a coordinator of cooperation between the Association of Southeast Asian Nations
Association of Southeast Asian Nations
The Association of Southeast Asian Nations, commonly abbreviated ASEAN rarely ), is a geo-political and economic organization of ten countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has...

 and the three East Asia
East Asia
East Asia or Eastern Asia is a subregion of Asia that can be defined in either geographical or cultural terms...

n nations of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...

, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

, and South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...

.

The first leaders' meeting was held in 1997 and the group's significance and importance was strengthened by the Asian Financial Crisis. The grouping was institutionalised by 1999.

ASEAN Plus Three, in establishing the Chiang Mai Initiative
Chiang Mai Initiative
The Chiang Mai Initiative is a multilateral currency swap arrangement among the ten members of the Association of Southeast Asian Nations , the People's Republic of China , Japan, and South Korea...

, has been credited as forming the basis for financial stability in Asia, the lack of such stability being a contributing factor to the Asian Financial Crisis. The Asian Currency Unit (ACU) is a proposed weighted index of currencies for ASEAN+3. The ACU was inspired by the now defunct European Currency Unit
European Currency Unit
The European Currency Unit was a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity. The ECU itself replaced the European Unit of Account, also at parity, on 13...

, replaced by the Euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...

. The Asian Currency Unit's purpose is to help stabilize the region's financial markets. The ACU as it is proposed is a currency basket and not a real currency, i.e., a weighted index of East Asian currencies that will function as a benchmark for regional currency movements.

The Asian Development Bank
Asian Development Bank
The Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...

 is currently reviewing different options concerning the technical aspects related to the ACU calculation, including the nature of the basket, the choice of fixed weights vs. fixed units, the selection of currencies to be included in the basket, the choice of weights, the criteria for their periodical revision, and other aspects as well. The Asian Development Bank was to announce the details of the ACU in March 2006 or later. However external pressures delayed this announcement although the concept was still being studied in detail. A panel discussion in February 2007 cited technical and political obstacles as having prevented the project from advancing. The unit, limited to ASEAN+3, was said to be still moving forward by mid-July 2007.

Related free trade areas

  • ASEAN – Australia – New Zealand Free Trade Area (AANZFTA) is a free trade area between ASEAN and ANZCERTA, signed on 27 February 2009 and coming into effect on 1 January 2010. Details of the AANZFTA agreement are available online.
  • ASEAN–China Free Trade Area
    ASEAN–China Free Trade Area
    The ASEAN–China Free Trade Area , also known as the China–ASEAN Free Trade Area is a free trade area among the ten member states of the Association of Southeast Asian Nations and the People's Republic of China...

     (ACFTA), in effect as of 1 January 2010
  • ASEAN–India Free Trade Area
    ASEAN–India Free Trade Area
    The ASEAN–India Free Trade Area is a free trade area among the ten member states of the Association of Southeast Asian Nations and India. The initial framework agreement was signed on 8 October 2003 in Bali, Indonesia. and the final agreement was on 13 August 2009...

     (AIFTA), in effect as of 1 January 2010
  • ASEAN–Japan Comprehensive Economic Partnership (AJCEP)
  • ASEAN–Korea Free Trade Area (AKFTA), in effect as of 1 January 2010
  • Comprehensive Economic Partnership for East Asia
    Comprehensive Economic Partnership for East Asia
    The Comprehensive Economic Partnership for East ASIA is a Japanese led proposal for trade co-operation, free trade agreement, among the 16 present member countries of the East Asia Summit.- Countries involved :The 16 countries are:...

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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