ASEAN Free Trade Area (1)

11 April 2013

Mekaniko

By Jaime T. Lopez, III

sl3.mekaniko@gmail.com

ASEAN Free Trade Area (1)

The Association of Southeast Asian Nations was founded in August 8, 1967, when the Foreign Ministers of Indonesia, The Philippines, Singapore and Thailand, as well as the Deputy Prime Minister of Malaysia, met in Bangkok to sign a document that firstly declared “…the establishment of an Association for Regional Cooperation among the countries of South-East Asia to be known as the…ASEAN” (http://www. icnl.org/research/library/files/Transnational/bangdec.pdf).

This document signed by the ministers of the five founding nations is known as the ASEAN Declaration (http://en.wikipedia.org/wiki/ASEAN_Declaration), and embodies the desire “…to establish a firm foundation for common action to promote regional cooperation in…” accelerating economic growth, social progress, and cultural development; the promotion of peace and stability; as well as securing freedom and prosperity for all, in the region. The declaration is also said to be a “…display of solidarity [of the ASEAN] against communist expansion in Vietnam and communist insurgency within their own borders”, and believed also by some to have prevented hostilities between the Southeast Asian countries affected by the formation of Malaysia in 1963.

In February 24, 1976, the Declaration of the ASEAN Concord, “…which provides that member states cooperate in the field of trade in order to promote development and growth of new production and trade” was signed in Bali, Indonesia. A year later, on February 24, 1977, the ASEAN Preferential Trading Agreements, or PTA, which “…provides for the adoption of various instruments on trade liberalization on a preferential basis”, was signed in Manila. Then, on December 13-15, 1987, during the Third Summit Meeting of the ASEAN Heads of Government in Manila, it was “…declared that Member States shall strengthen the intra-ASEAN economic cooperation to maximize the realisation of the region’s potential in trade and development” (http://www.worldtradelaw.net/fta/agreements/afta.pdf).

All of the previously stated developments have been the building blocks that brought about the forming of a Framework Agreement that would start the ball rolling for the creation of the ASEAN Free Trade Area, or AFTA, a “…trade block agreement by the Association of Southeast Asian Nations supporting manufacturing in all ASEAN countries” (http://en.wikipedia.org/wiki/ASEAN_ Free_Trade_Area). And this end result, based on my appreciation of my readings on the subject matter, seemed to be very much in the mind of the ASEAN founders.

The Framework Agreement, known as the “Singapore Declaration” was signed on January 28, 1992 in Singapore by the Heads of Government of six Southeast Asian Countries, namely, Sultan Haji Hassanal Bolkiah of Brunei, President Soeharto of Indonesia, Prime Minister Mahatir Bin Mohamad of Malaysia, President Cory Aquino of the Philippines, Prime Minister Goh Chok Tong of Singapore, and Prime Minister Anand Panyarachun of Thailand. The original six countries were later on joined by four others, namely, Vietnam (1995), Laos and Myanmar (1997), and Cambodia (1999), which increased the ASEAN and AFTA membership to ten.

The said Framework Agreement mandates the creation of AFTA in 15 years, which is supposed to be met by 2008. This deadline, subsequently, was advanced to January 1, 2003 during the Asean Economic Minister’s Meeting in September 1994 (http://www.tariffcommission.gov.ph/afta-cep.html). However, the late comers in the ASEAN, known as the CLMV, were given longer time frames to comply with obligations, so the AFTA is expected to be a full reality by 2015, which is just around the corner.

As previously mentioned AFTA is a trade block which seeks to “…increase ASEAN’s competitive edge as a production base in the world market through the elimination, within ASEAN, of tariff and non-tariff barriers.” This would be accomplished through the Common Effective Preferential Tariff scheme which “…reduce intra-regional tariffs [to 0-5%] and remove non-tariff barriers.” The lower tariff is envisioned to stimulate demand as it will make manufactured goods in AFTA cheaper, making them more attractive to member countries, and especially when compared against non-ASEAN countries.

Another goal of AFTA is to attract more Foreign Direct Investments into the ASEAN region. The cheaper cost of producing goods, because of lower tariffs and the elimination of non-tariff barriers, and the 640 million ASEAN population as an internal market can be expected to be factors that will act as a magnet to investors.

Due to space limitations, Part 2 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).