ASEAN Free Trade Area (2)

15 April 2013

Mekaniko

By Jaime T. Lopez, III

sl3.mekaniko@gmail.com

ASEAN Free Trade Area (2)

Last Friday’s column (PJ, Apr 12) traced the development of AFTA from the time the “ASEAN Declaration” creating the Association of South East Asian Nations was signed in 1967 (by ministers of Indonesia, the Philippines, Singapore, Thailand, and Malaysia), up to the time the “Singapore Declaration”, or the Framework Agreement mandating the creation of ASEAN Free Trade Area in 15 years (or by 2008), was signed in 1992.

Subsequent developments, however, expanded the ASEAN and AFTA trade block membership to 10 countries, and also adjusted the final deadline for the full realization of AFTA to 2015, less than 2 years away. This means that by 2015, there would be full free trade among the 10 member countries of ASEAN, namely Indonesia, the Philippines, Singapore, Thailand, Malaysia, Brunei, Vietnam, Myanmar, Laos and Cambodia.

When this time comes, there will be zero tariff on virtually all imported goods originating from within the ASEAN (i.e., goods that have at least 40% of FOB value attributable to the 10 “trade block” members). And this condition, together with the elimination of “non-tariff barriers”, is viewed to help bring down the cost of manufactured goods that would further induce internal trade among member countries, as well as improve the region’s competitive edge as a manufacturing base in the world market (http://en.wikipedia.org/wiki/ ASEAN_Free_Trade_Area). Cheaper production costs and the huge ASEAN internal market is to act as a magnet that would draw in more Foreign Direct Investments into the region.

I listened very recently to a talk by the University of Asia and the Pacific economist, Dr. Bernie Villegas, who shared his prediction that the advent of AFTA would enable the ASEAN to challenge, in 10-20 years, the two economic giants in the Asian Region, namely China and India.

The prediction is based on the experience of Europe which was, among other things, economically ravaged in the 1940s (during WWII). But because of the creation in 1957 of the European Economic Community, or Common Market, where the “…internal trade between the member states is aided by the removal of barriers to trade such as tariffs and border controls”, the region gradually recovered, and was even able to eventually challenge the US and Japan for economic supremacy. And as a result, as of the end of 2012, the EEC, which is now known as the European Union or EU (currently with 27 member countries, and a combined population of 501 million), has, with US$ 16.566 trillion GDP, the largest economy in the world. It is also the largest exporter in the world, and as of 2008, also the largest importer of goods and services (http://en.wikipedia.org/wiki/Economy_of_the _European_Union).

Bernie Villegas adopted a novel way of stressing the potential economic value of collaboration and cooperation when he used the “batik barong” that he was wearing to give a dramatic demonstration of what can happen in the AFTA economic community in the next 20 years. This is in the light of the 10 Asian nations becoming just one single market, especially for manufactured goods.

The barong, he explained was produced by a Filipina based in Jakarta. This lady according to him thought of the idea of importing “jusi” from China, imprint it with the “batik” technology of Indonesia, then tailor it into the form of a Filipino “barong tagalog”. Because of this process alone, the “batik barong” according to him, stands to attract the interest of the 250 million Indonesians, 25 million Malaysians, and 5 million Singaporeans who are partial to “batik”. It would also attract interest of about 100 million Filipinos who are partial to “barong tagalog”, their national costume. Immediately, there could already be a potential 380 million persons for the product, just from the internal ASEAN market. And this has not even considered the possible market that the “batik barong” may generate from among the 1.3 billion mainland Chinese, where the “jusi” came from.

The way things are, the future looks bright, for ASEAN in general, as even now, the two main goals of AFTA, that of developing a competitive edge in manufacturing, and that of attracting more FDIs are being realized. However, the Philippines seem to have disproportionately trailed others during the past years, when it comes to getting its fair share of the benefits from the AFTA.

Due to space limitations, Part 3 of this article will follow in the next column. Meanwhile, comments/reactions will be appreciated and can be sent through this writer’s email (sl3.mekaniko@gmail.com) or through this writer’s blog (http://mekaniko-sl3.blogspot.com).