ASEAN Internal Tariffs Reduced, As FTA With China Is Effective

From January 1, trade tariffs within the Association of Southeast Asian Nations (ASEAN) reduced further and a free trade agreement with China came into effect. Both of these events are expected to lead to a significant increase in trade and investment in the region.

Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand can, from January 1, import and export almost all goods across their borders free of tariffs. For these countries, the so-called ASEAN-6, almost 7,900 additional product lines will come down to zero tariffs, bringing the product lines traded under the common effective preferential tariffs for the ASEAN Free Trade Area (CEPT-AFTA) to over 99% of the total.

In 2008, the intra-ASEAN import value of commodities for these 7,900 lines amounted to USD22.66bn, or 11.84% of ASEAN-6’s import value within ASEAN.

Those lines include final consumer products, such as air conditioners; intermediate materials, such as motorcycle components; and other products, including iron and steel, plastics, machinery and mechanical appliances, chemicals, prepared foodstuffs, paper, cement and glass.

The CEPT-AFTA covers the whole range of products traded by the ASEAN member states and provides for the gradual reduction in tariffs of these products, which has been ongoing since 1993. The commitment under the CEPT-AFTA is for tariffs to be reduced to zero by 2010 for ASEAN-6, and by 2015 for the remaining four countries, namely Cambodia, Laos, Myanmar and Vietnam. In 2010, those countries will also see tariff reductions to 5%.

Trade and economic ties between ASEAN and China have been growing rapidly over the past years, especially after the signing of the framework agreement on economic cooperation in November 2002 to establish the ASEAN-China Free Trade Area (ACFTA). Both sides targeted the realization of ACFTA in 2010 for Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and China, and 2015 for Cambodia, Laos, Myanmar and Vietnam.

ACFTA is obviously a regional trading arrangement of some global significance, given the magnitude of trade between the two sides, which accounted for 13.7% of global trade or almost half of Asia’s total trade in 2007. Total trade between ASEAN and China reached USD192.5bn in 2008. China is ASEAN’s third largest trading partner, accounting for 11.3% of ASEAN’s total trade.

Both of these developments for ASEAN are expected to promote substantial further changes in the region, both bilaterally between individual countries, and multilaterally, in stimulating the formation of closer regional economic ties.

It has been reported that Japan, India and South Korea are also interested in similar ties with ASEAN, while Singapore, Brunei and Vietnam are interested in a proposed expansion of the Trans-Pacific Partnership, which could also include the US.