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Open Regionalism and Deeper Integration: The Implementation of ASEAN Investment Area (AIA) and ASEAN Free Trade Area (AFTA)

Dr. Lawan Thanadsillapakul

Part 4

The New Framework Agreements of ASEAN

However, in 1998 the ASEAN countries agreed to further enhance the realisation of AFTA and they agreed that each individual country would commit to achieve a minimum of 85% of the inclusion list with tariffs of 0-5% by the year 2000, and a minimum of 90% of the inclusion list in the 0-5% tariff range by the year 2001. By 2002, 100% of items in the inclusion list would have tariffs of 0-5%. They also agreed to implement, as soon as possible, tariff reductions to 0% and to accelerate the transfer of products which are currently not included in the tariff reduction scheme into the inclusion list. The new members of ASEAN also agreed to reduce their tariff lines between 0-5% by 2003 for Vietnam, and 2005 for Laos and Myanmar; to expand the number of tariff lines in the 0% category by 2006 for Vietnam, and by 2008 for Laos and Myanmar(20) . This shows the impact on ASEAN economic integration of the Asian crisis, as all these developments have taken place due to the action plan of ASEAN for recovery from the crisis.

In fact, ASEAN vigorously reviewed its institutional mechanism (Tan Sri et al, 1991; Chng Meng Khng, 1991) in the fourth ASEAN Summit, at the same time as launching the AFTA scheme, and many attempts had been made to streamline its institutional mechanism. However, at that time the development did not have the clear aim of deepening regional integration but rather of strengthening its function as it should be in those circumstances. This reflects the lack of a political basis for supporting integration at the initial stage of AFTA(21) .

In the past, the rationale for maintaining a loose organisation was that ASEAN countries did not have the political will(22) to enhance regional integration, to establish regional regulatory regimes and supranational institutions in ASEAN. Consequently, most of the co-operation programs were agreed in a loose framework-agreement form and they have been implemented individually rather than on a common policy basis. This includes the initial Framework Agreement on AFTA. But after the Asian crisis, we have seen various changes and accelerations take place to realise the ASEAN free trade area.

The main progress, even before the Asian crisis, for the improvement of AFTA was facilitated by two protocols: The Protocol to amend the Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area (1995)(23) and The Protocol to Amend the Agreement on ASEAN Preferential Trading Arrangement (1995)(24) . The first enlarges product coverage to include all manufactured products and processed agriculture products, which were previously excluded from the list(25) , and also accelerates the time frame to fulfil AFTA by re-setting the schedule of tariff reduction in various sectors(26) . The latter amends the rule of origin by substituting the rule of origin under the agreement on ASEAN Preferential Trading Arrangement for the rule of origin under the Common Effective Preferential Tariff Scheme for AFTA(27) . Because the CEPT is the instrument for implementing AFTA and replaces the PTA (28) , which is the instrument for preferential trading arrangement prior to the launch of AFTA and will be gradually eliminated and replaced by the CEPT under AFTA. Prior to the establishment of AFTA, the measures mostly adopted were the extension of tariff preferences. Under PTA, an effective ASEAN margin of tariff preferences was to be accorded on a product-by-product basis and where tariff preferences were to be negotiated on a multilateral or bilateral basis, the concessions so agreed would be extended to all parties on an ASEAN MFN basis, except where special treatment is accorded to products of ASEAN Industrial Projects. The main differences between the PTA and CEPT are that under the former, preferences are granted only by the nominating country and there is no reciprocity. Under the latter, there is reciprocity in that goods must be accepted to be under CEPT by all countries so that all must give the preferential tariff. CEPT is, therefore, potentially more encompassing (Davidson, 1997b: 83-95). This development implies a shift toward economic integration of ASEAN. Moreover, it reflects the conditions and factors affecting ASEAN development that fundamentally lie in political appetite and economic circumstances.

Part 5


(20) The Hanoi Plan of Action agreed upon on 15th December 1997. The acceleration of the time-frame of AFTA implementation was provided in Section II. 2.1 of the Action Plan.

(21) Previously, the concept of a free trade area or custom union within the ASEAN was rejected and other methods of more limited economic co-operation were adopted such as the Preferential Trading Arrangement, ASEAN Industrial Projects, ASEAN Industrial Complementation, ASEAN Industrial Joint Ventures.

(22) Pelkmans pointed out that "Initially, the word 'integration' is a taboo in ASEAN. It is only recently that ASEAN countries endeavour to implement regional integration". Pelkmans 1997: 216.

(23) Done at Bangkok on 15th December 1995.

(24) Done at Bangkok on 15th December 1995.

(25) Art. 2 of the Protocol to amend the Agreement on the Common Effective Preferential Tariff Scheme for the AFTA (1995) provided that "This Agreement shall apply to all manufactured products including capital goods, and agricultural products".

(26) Art. 3 of the Protocol to Amend the Agreement on the Common Effective Preferential Tariff Scheme for the AFTA (1995).

(27) Art. 1 of the Protocol to Amend the Agreement on ASEAN Preferential Trading Arrangement (1995) provided that "Annex 1 of the Agreement on "Rules of Origin for the ASEAN Preferential Trading Arrangements", previously amended by the Protocol on Improvements on Extension of Tariff Preferences under the ASEAN Preferential Trading Arrangements signed in Manila on 15th December 1987, and the "Operational Certification Procedures for the Rules of Origin of the ASEAN Preferential Trading Arrangements" shall be substituted with the "Rules of Origin for the Common Effective Preferential Tariff (CEPT)" Scheme for the ASEAN Free Trade Area and the "Operational Certification Procedures for the Rules of Origin of the ASEAN Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area" set out in ANNEX 1 and ANNEX 2 respectively which shall form an integral part of this Protocol".

(28) Agreement on ASEAN Preferential Trading Arrangement was signed on 24th February 1977 resulting from the resolution of the Declaration of ASEAN Concord. The Agreement provided that ASEAN members are to extend trade preferences to each other in accordance with the provisions of the agreement and the rules, regulations and decisions agreed within its framework. PTA is not aimed at creating custom union or free trade area within the meaning of Art. XXIV of GATT but rather to create a preferential trading area based on the exception of MFN obligation under the "enabling clause" agreed to by the Contracting Parties at the Tokyo Round of the GATT to allow developing countries to enjoy preferences extended to each other.

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