ASEAN Free Trade Area

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ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the Association of Southeast
Asian Nations 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, Indonesia, Malaysia,
Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997 and
Cambodia in 1999. AFTA now comprises the 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 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".

Contents
[hide]

 1 History
 2 The Common Effective Preferential Tariff (CEPT) scheme
 3 Rule of Origin
 4 Administration
 5 Dispute Resolution
 6 Further trade facilitation efforts
 7 Membership
 8 ASEAN Plus Three
 9 AANZFTA
  10 References

[edit] History
A proposal to set up a Free Trade Area in Asean was first mooted by the Thai Prime Minister
Anand Panyarachun, which was agreed upon with amendments during the ASEAN Seniors
Economic Official Meeting (AEM) in Kuala Lumpur. 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.

[edit] The Common Effective Preferential Tariff (CEPT)

scheme
Unlike the EU, AFTA does not apply a common external tariff 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, aka 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.

[edit] 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.

[edit] 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.

[edit] 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.

[edit] 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 as
part of its Trade Costs and Facilitation Project,[1] 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).[2]

[edit] Membership
Countries that agree to eliminate tariffs among themselves:

 Brunei
 Indonesia
 Malaysia
 Philippines
 Singapore
 Thailand
Regular Observers

 Papua New Guinea

 East Timor

Countries, to join in 2012:

 Myanmar
 Cambodia
 Laos
 Vietnam

The most recent ASEAN meeting was observed also by :

 People's Republic of China

 India
 Japan
 Korea
 Australia
 New Zealand

[edit] ASEAN Plus Three

See also: Asian Monetary Unit
Members of the ASEAN Plus Three

ASEAN Plus Three is a forum that functions as a coordinator of cooperation between

Association of Southeast Asian Nations and the three East Asian nations of China, Japan, and
South Korea.

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 [3]. More
recently however there has been the suggestion that the significance of the grouping is being
eclipsed by the East Asia Summit (EAS) but that is by no means certain given the current
embryonic state of the EAS.

ASEAN Plus Three in establishing the Chiang Mai Initiative has been credited as forming the
basis for financial stability in Asia [4], 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,
replaced by the Euro. 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.[5][6]
The Asian Development Bank 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.[7] However
external pressures delayed this announcement although the concept was still being studied in
detail[8]. A panel discussion in February 2007 cited technical and political obstacles as having
prevented the project from advancing[9]. The unit, limited to ASEAN+3, was still said to be
moving forward by mid-July 2007[10].

[edit] AANZFTA
AANZFTA (ASEAN-Australia-New Zealand Free Trade Area) is a free trade area between
ASEAN and ANZCERTA, signed on 27 February 2009[11]. Details of the AANZFTA agreement
are available online16 Asian nations step up efforts on free-trade zone
April 11, 2009, 4:41pm

Pattaya, Thailand, April 11 (AFP) – Sixteen Asian nations representing nearly half the world's population will step up
studies into a free-trade zone stretching from China to Australia, according to documents obtained by AFP.

The documents to be issued during a weekend summit in the Thai resort town of Pattaya said the Asian leaders will
throw their support behind efforts to deepen and expand trade ties and reject protectionist measures.

Leaders of the 10-member Association of Southeast Asian Nations (ASEAN) will meet their counterparts from China,
Japan and South Korea on Saturday.

On Sunday the 13 countries will join leaders of Australia, India, and New Zealand under the East Asia Summit.

A draft of the statement to be issued at the end of Saturday's talks said leaders will ask their economic ministers to
''explore ways and means to increase regional trade.''

The leaders said an East Asia-wide free-trade zone covering ASEAN as well as China, Japan, and South Korea
would enhance the free flow of goods, people and capital.

''In this regard, they tasked the economic ministers to submit the final report of the second phase feasibility study of
the East Asia Free Trade Area'' during their next summit in October, the document said.

Free trade and a rejection of protectionism is also a major plank in the leaders' statement to be issued on Sunday by
the larger 16-nation grouping.

A draft of that document said the leaders will agree to further open up their markets and look forward seeing their
ministers' recommendations on the pan-Asia free-trade zone during the October talks.

''As a further sign of their commitment they pledged to minimize the trade-distorting impact of their fiscal stimulus
measures and industry support policies,'' it said.

ASEAN has signed free-trade pacts with most of its trading partners, but it is pushing for a larger Asia-wide zone
where both tariff and non-tariff barriers are torn down.
Economists say establishing an Asia-wide free-trade zone will be challenging and is a long-term project, but that
networks of smaller accords could be a foundation to build on.

But some analysts have warned that dividing the world into trade blocs could undermine multilateral talks under the
World Trade Organization