AS a result of the failure of WTO members countries to enter into major agreements during the ministerial meeting in Cancun, Mexico two years ago, the focus of many countries and regional groupings have been towards bilateral and regional trade arrangements.
These arrangements ostensibly will impact on the trading community in the short and medium term. In the Asia-Pacific region, many of the trade negotiations involve the ASEAN member countries and the major trading countries of Asia. Specifically, the regional agreements between ASEAN and the big three Asian countries (China, Japan and Korea) are in various stage of negotiations or implementation.
The RP-China bilateral trade agreement is now being implemented, with the early harvest program soon to be implemented. The RP-Japan agreement is scheduled for approval by September this year. For ASEAN, efforts continue towards further reducing tariffs for goods and harmonizing rules governing trade in services. While China and India have become growth engines, attracting most of the foreign direct investments in the region, ASEAN remains attractive with its 520 million inhabitants and with a total GDP of US$700 billion. AFTA-CEPT.
As a background, ASEAN Free Trade Area (AFTA) involves the removal of obstacles to free trade among the 10-member states of ASEAN. It includes the lowering of tariff rates and the removal of quantitative restrictions and other non-tariff barriers that limit or prevent the entry of imported goods. While the intent of AFTA is create an integrated market for ASEAN’s half billion people, the ultimate objective is to increase the region’s competitive edge as a production base for the world market.
The main instrument for making ASEAN a free trade area is the Common Effective Preferential Tariff Scheme (AFTA-CEPT), which hopes to reduce intra-regional tariffs and remove non-tariff barriers. For the ASEAN 5 (RP, Malaysia, Thailand, Indonesia and Singapore), 99% of products lines in the inclusion list are already in the 0-5% duty rates.
The rest of ASEAN like Cambodia, Myanmar, Laos and Vietnam have 80% of their products moved to inclusion list; with 66% of those in the list already in the 0-5% range. Japan, US and the EU remain as the largest trading partners of ASEAN, with Japan as the largest source of imports. Intra-ASEAN trade has increased 4.2% (export) and 1.6% (imports) in 2003. New Rules of Origin. Under AFTA-CEPT, there is a set of rules to determine the country of origin of a product for purposes of availing of the special rates.
To prevent transshipment of goods originating from non-ASEAN states, it is not enough that the goods were exported from a member state. The rule on country of origin is based on the concept of “substantial transfor-mation”, which assigns origin to the country where the last substantial transformation occurred. Substantial transformation may be roughly defined on the basis of a change in tariff heading, achieving a threshold of proportion of value-added, or on the basis of certain manufacturing processes. The basis of substantial transformation is a 40% threshold level of the value of the product. For products availing of the preferential tariff rates under CEPT, a new rules of origin has been issued with effect from January 2005.
The new rules intend to provide new standards in the method for calculating local/ASEAN content and guidelines for costing methodologies and the treatment of locally-procured materials. It also provides new procedures for verifying local/ASEAN content calculation.
What is most important with the new rules is that it now allows the cumulation of materials with less than 40% but more than 20% ASEAN content for purposes of computing the local content of the final product. Apparently, this was not allowed under the old rule, which was based on the “all or nothing” principle. In addition to the new rules of origin, special substantial transformation rules have been issued for several product sectors (e.g. wheat flour, iron and steel). ASEAN+3.
The ongoing regional trade negotiations between ASEAN and the three major trading countries in Asia (Japan, China and Korea) will involve a wide-ranging area for economic cooperation, including trade and investment. The trade agreements are ongoing with plans for early harvest programs. Already, there are discussions on the prospects of creating an East Asia Free Trade Area in the not so distant future. According to studies, the US will potentially be the biggest loser once ASEAN+3 evolves into a fully integrated common market. AEC – The Future of ASEAN.
The ASEAN Economic Community (AEC) is one of the three pillars under the ASEAN Community concept, which includes the ASEAN Security Community (ASC) and the ASEAN Socio-Cultural Community (ASCC). With the prior establishment of the building blocks towards ASEAN economic integration, the movement towards an AEC by 2020 is the most logical step in the economic ladder. Policy makers foresee an AEC established towards the direction of an “FTA plus” arrangement. An FTA Plus arrangement is basically a zero-tariff free trade agreement with additional benefits akin to a common market.
Most of the initiatives toward the creation of the AEC are to be submitted by end of this year. Even as these initiatives are being finalized, the various building blocks for economic integration are being established not only for ASEAN but for the major trading countries of East Asia.