AFTA as One of the Free Trade Agreements

Added: 05/29/2006

ASEAN Free Trade Area, commonly referred to as AFTA, is a free trade agreement by the Association of Southeast Asian Nations. When it was originally signed, ASEAN membership was composed of six countries, including Thailand, Singapore, Philippines, Malaysia, Indonesia and Brunei. Vietnam and Cambodia joined in 1995 and 1999 respectively. Currently AFTA free trade agreements involve ten countries of the ASEAN.

The origins of one of the free trade agreements, AFTA can be traced back to 1992, when it was initiated by ASEAN at the fourth Summit in Singapore. The agreement presented a comprehensive program of regional tariff reduction to be implemented through 2008. Since its introduction the program was broadened and accelerated, which also implies the initiation of AFTA Plus activities host, including efforts to harmonize valuation, procedures and customs nomenclature, to develop common product certification standards and eliminate quantitative restrictions and barriers. An industrial complementation scheme for encouraging intra-regional investment was approved and steps were made to create a free investment area within this region.

The ASEAN Free Trade Area, along with other initiatives for promoting regional economic integration has been long supported by the US ASEAN Business Council, whose members indicated that with a population of more than half a billion and ten integrated markets, ASEAN would be more attractive to large-scale investment as compared to relatively small markets.

Like other free trade agreements in Asia, ASEAN Free Trade Area aims at eliminating non-tariff barriers and promoting trade and investment. In addition, AFTA primary goals seek to increase the competitive edge of ASEAN as a production base in the world market and attract more foreign investment to it. The basic mechanism for achieving these goals is the Common Effective Preferential Tariff Scheme designed with the purpose to increase competitive advantage of the region as a production base for the world market.

It is the mechanism, by which tariffs on services and goods traded within ASEAN region, will be reduced to 5% by 2007 for Vietnam, 2009 for Myanmar and Laos and 2010 for Cambodia. All ASEAN members have now opportunity to exclude products from the Common Effective Preferential Tariff in three cases, namely temporary exclusions, sensitive agricultural products and general exceptions. Temporary exclusions generally refer to products which are protected by delay in tariff reductions, and for which tariffs will be lowered to 5%.

This is possible under AFTA free trade agreements and is explained in a Protocol Regarding Implementation of CEPT Scheme Temporary Exclusion List. A small percentage of sensitive agricultural products will be extended by 2010 for the integration into CEPT scheme. The process of tariff reduction on such products started between 2000 - 2005, depending on the product and the country. According to AFTA free trade agreements, general exceptions refer to products that are considered to be necessary for protection of health, human, animal and plant life, and protection of articles of archeological, historic and artistic value. Nearly 1% of ASEAN tariff lines fall into this category.

One of the important features of the ASEAN economic co-operation is ASEAN Industrial Cooperation Scheme, designed to encourage technology-based investments in the region and is open to any company that meets the following requirements: operating in one of ASEAN countries, engages in some form of resource sharing and more.

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