Regionalism and Deeper Integration: The Implementation of ASEAN Investment
Area (AIA) and ASEAN Free Trade Area (AFTA)
New Framework Agreements of ASEAN
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.
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
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.
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
The first enlarges product coverage to include all manufactured products
and processed agriculture products, which were previously excluded from
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
(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.
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.
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.
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.
Done at Bangkok on 15th December 1995.
Done at Bangkok on 15th December 1995.
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".
Art. 3 of the Protocol to Amend the Agreement on the Common Effective
Preferential Tariff Scheme for the AFTA (1995).
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".
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