ASEAN FREE TRADE AREA (AFTA)
INTRODUCTION OF AFTA
After 25 years of the establishment of
ASEAN, the formation of ASEAN Free Trade Area (AFTA) was formed in Singapore
through ASEAN Summit 1992. Formation of AFTA as a reaction to other emerging
regional groupings, which is North American Free Trade Area (NAFTA) and the development
of the European Union (EU). The goal of AFTA is to create a single market and
an international manufacturing base, as well as to attract foreign direct
investment and promote intra-ASEAN trade and investment. ASEAN Free Trade Area
is one of the drastic decisions made by ASEAN countries to develop theirs
economic because at that time there is no movement of shifting positively in
term of their economic development. Through the Agreement on the Common
Preferential Tariff (CEPT), the aims of ASEAN Free Trade Area (AFTA) which is
eliminate the tariff barriers can be achieved. The ASEAN members that involve
in AFTA only impose maximum 5% tax and tariffs for products and goods that has
been imported by the members countries. This is to encourage intra region trade
and also stimulate the regional economic development. In order to achieve the
economic development in the ASEAN, all 10 ASEAN members will open their market
to receive and sent their goods and products by opening their borders and
territories. The ASEAN members can increase their economic by expanding their
markets in the other ASEAN countries. For example, Malaysia can increase their
economic by sending their products and goods to the other ASEAN members such as
Indonesia and Singapore. The implementation of ASEAN Free Trade Area brings
benefits as well as disadvantages for involving countries. The benefits that
can be highlighted are can increase the economic and also can attract more
Foreign Direct Investment (FDI) to invest in the ASEAN countries. The
disadvantages can be seen when this activity can be as a threat to the infant
industries.
ASEAN’S INITIATIVES FOR FREE TRADE IN
EAST ASIA UNDER AEC
“What”
The ASEAN’s initiatives for free trade
in East Asia under AEC is the ASEAN Free Trade Area (AFTA). Basically, AEC
focusing on creating the production based towards the free flow in term of
goods, services, capital, investments, and skilled labor of ASEAN. (The ASEAN
Economic Community: Investment Opportunities and Challenges in the World’s
Newest Market, 2016) AFTA was launched in 1993 to eliminate the tariff which is
for the ASEAN-6 first in 2010. After that, followed by Cambodia, Laos, Myanmar,
and Viet Nam in 2015. Then, the remaining ASEAN countries eliminated in 2018.
The ASEAN leaders had agreed to build
the momentum and increase the progress of AFTA in 2013. They also figure out to
broaden the regional cooperation between them. They also declare the AEC as one
of the three pillars of the ASEAN Community in Bali Concord II. (Secretariat,
2021) The completion of AFTA elimination in 2018 let ASEAN focusing on
facilitate and simplify the tariff reduction, exemption, and trade procedures.
One of the initiatives is the AFTA-CEPT Agreement. The main idea of this
agreement is to create the free trade among the ASEAN in term of elimination of
tariff and non-tariff barriers.
One of AFTA advantages can bring
benefits from economic scale. Moreover, when AFTA has implement, the tariff was
reduced where the production of product can increase by using low cost.
Furthermore, other advantages of AFTA is attract more Foreign Direct Investment
(FDI), by reduce tariff will attract more investor. Hence, it can increase job
opportunities to unemployment. On top of that, ASEAN member’s country will
increase their economy as well as Gross Domestic Product (GDP).
“How”
Based on the article, ASEAN country has
agreed to form a concept of a unified and effective ASEAN preferential tariff
at 22nd ASEAN Economic Minister’s Meeting that held in 1990. This tariff
includes industrial products, including cement, fertilizer, and pulp. Then, the
idea of AFTA was formally proposed by Prime Minister at 24th ASEAN Ministerial
Meeting in Thailand. Hence, Framework Agreement on Enhancing ASEAN Economic
Cooperation was recorded which is the implementation of AFTA was specified
within 15 years. After 3 years of AFTA implementation, another list of items
subject which is agricultural products were added to tariff reductions. In
September 1999, which is after 7 years of implementation of AFTA, the rate of
tariff was updated from 5 – 0%. This shows that, the main objectives of AFTA
implementation which is reduction of tariff was nearly to achieve. In fact, the
rate of tariff is nearly to eliminate tariff. Moreover, the result of AFTA is
shows positive progress even though ASEAN has only implemented it for 7 years.
IMPACT OF ASEAN FREE TRADE AREA
Here we can see the positive and
negative impact of ASEAN Free Trade Area (AFTA) to the ASEAN members. Firstly,
the positive impact of ASEAN Free Trade Area (AFTA) is attracted more Foreign
Direct Investment (FDI). One of the most commonly discussed characteristics of
globalisation in recent decades has been the rapid expansion of trade and
foreign direct investment (FDI) flows. FDI also played an instrumental role in
the economic growth of developing countries. Inflow of FDI into this region
will bring capitals that are needed by countries in this region in order to
develop their economics. Based on the article by Seiya Sukegawa, title “ASEAN’s
initiatives for free trade in East Asia under AEC” AFTA also shown the result
in attracting investment, automobile industry for example. AFTA made a
substantial investment in Thailand and Indonesia. The major cause is to
establish major production from other countries in this region. However, this
was based on the use of AFTA to reduce or eliminate intra-regional tariffs. Additionally,
the money invested by investors can be used to spur economic growth and inject
cash into the economy.
Next impact of ASEAN
Free Trade Area (AFTA) is being as a competitive edge of this region. By
establishing AFTA, it will serve as a speciality or uniqueness of this region.
This region will be identified as a world’s manufacturing hub when AFTA is
fully worked in 2009. Through tariff reductions and relaxed trade requirements,
AFTA gives importers and manufacturers in these countries a competitive
advantage. Importer costs are reduced, customs clearance times are improved,
trade procedures are simplified, and a wider range of products eligible for preferential
treatment is available. As a result, the removal of intra-regional tariffs as
well as non-tariff trade barriers has aided ASEAN's manufacturing sectors in
becoming more efficient and competitive in the global market. As a result,
consumers will be able to buy goods from more efficient ASEAN producers.
However, ASEAN Free Trade Area (AFTA)
also has a negative impact which is the imbalances and huge gap of economic
development. This imbalance and the gap are between the ASEAN members itself.
Where ASEAN can be divided into two major groups which are ASEAN 6 and ASEAN 4.
The members in ASEAN 6 is the country that more develop like Malaysia,
Indonesia, Singapore, Thailand and Brunei. Where these countries, more advanced
and far further from economic and industrial perspective other than ASEAN 4
which are, Cambodia, Laos, Vietnam and Myanmar. By produces this AFTA, the
ASEAN 6 can enjoy more advantages from that because of the capital strength,
political peace and stability and educated. As we can see on 3th June 2021, the
ranking of vaccination from the 6 country that have a big population in ASEAN
which are Malaysia, Indonesia, Thailand, Filipina, Myanmar and Vietnam. The top
three country that have a highest ranking the highest percentage of the population
receiving COVID-9 vaccine where Malaysia is the top country among the 6 ASEAN
countries. But at the last ranking is Vietnam
CONCLUSION
In conclusion, the establishment of AFTA can help accelerate the economic development of the region. The impacts of AFTA can be seen in increasing of intra-regional trade and investment, resource allocation within the regional economies and also higher money income. AFTA also encourages regional economies to improve their economic, conceptualized to attract foreign investment and increase the export of industrial products by multinational corporations. AFTA aims to make ASEAN as a competitive production base for goods and services which can help to increase trade and industry development and cash flow to the economic. Besides, it shows the unique of ASEAN as it brings incomes to the member countries. As a result, it becomes more competitive and attractive for investors globally and show the ability of them in compete effective and efficiently for market and investment activity. As we can see the basic feature creation of the AFTA is the reduction of various barriers to trade in the region. This can be done through the elimination of various intra-boundary tariffs and non-tariff barriers. AFTA have their own specific pros and cons towards the economic members of country. As a result, the establishment of AFTA is important towards ASEAN because the impact of the AFTA itself can affect and influence the future of ASEAN country.
REFERENCES
Ministry of International Trade and Industry. (2021). ASEAN
Free Trade Area (AFTA). Retrieved from fta.miti.gov.my: https://fta.miti.gov.my/index.php/pages/view/asean-afta
mStar. (2015, November 21). Langkah Menerusi AEC Akan
Tingkat KDNK Asean. Retrieved from mstar.com.my:
https://www.mstar.com.my/lokal/semasa/2015/11/21/langkah-aec?itm_source=parsely-api
Staff Writers. (2021, June 3). Malaysia ungguli negara
utama Asean dalam kadar vaksinasi. Retrieved from malaysianow.com:
https://www.malaysianow.com/berita/2021/06/03/malaysia-ungguli-negara-utama-asean-dalam-kadar-vaksinasi/
Seiya
Sukegawa (2021) ASEAN’s initiatives for free trade in East Asia
under AEC, Journal of Contemporary East Asia
Studies, 10:1, 42-64, DOI: 10.1080/24761028.2021.1902068
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