Asia Times: Southeast Asia takes first steps toward free trade



	October 05, 1999	atimes.com

Southeast Asia

Southeast Asia takes first steps toward free trade
By Kalinga Seneviratne

SINGAPORE - The Association of Southeast Asian Nations (Asean) has taken the initial steps towards greater regional economic integration as trade ministers of the 10-member grouping decided to press ahead with plans to establish an Asean Free Trade Area (Afta).

Despite some misgivings, particularly from Malaysia and Indonesia, about opening up their car markets, Asean ministers made commitments on narrowing tariffs on a number of key items by January 2000. They also agreed to press on with trade liberalization, whereby the original six members of Asean will have zero tariffs on all goods by 2015.

''This is a very significant step Asean has taken to a truly free-trade area,'' said Singapore's Trade and Industry Minister, George Yeo, the co-chairman of the 31st Asean Economic Ministers meeting and the Afta council, which concluded in Singapore on Friday.

The key Asean countries have agreed to reduce import duties on 85 percent of their products which were originally on their exclusion list. The duties will come down to between 5.0 and 0 percent by January next year.

Malaysia's Trade Minister Rafidah Aziz said Kuala Lumpur wanted to defer its commitment to the deadline with respect to reducing car import duties because it is still recovering from the economic crisis. But she pointed out that Malaysia was one of the few Asean countries that would have 60 percent of its product lines at 0 percent tariffs by January 2000.

Rafidah warned that because they refuse to ''exclude one product'' people must not read it as Malaysia's refusal to commit to regional trade liberalization. ''Whatever problems we have, we will ensure that overall, Afta becomes a reality within the time frame we set out,'' she said.

Indonesia's Trade Minister Rahardi Ramelan also expressed reservations about reducing car import duties, but said a firm decision on it will be conveyed to the Asean summit in Manila in November.

Singapore has offered to transfer all but four of its 120 items on the exclusion list to a list subject to lower tariff. ''As we move towards 100 percent [tariff-free situation] some of the items become domestically more difficult to open up. It is to be expected, but we are on the way,'' added Yeo.

The plan agreed upon is for the original six members of Asean - Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand - to ensure a zero percent tariff on all goods by 2015, while the other four member nations - Laos, Vietnam, Burma and Cambodia - will meet that target by 2018. The key six members will also abolish import duties on 60 percent of their products by 2003.

As Asean ministers started discussion last week on Afta, trade figures made available to the meeting indicated that trade among Asean countries has not yet recovered to the pre-crisis levels of 1997. The figures showed that while the contraction in intra-regional trade has bottomed out - signalling a rebound in Asean trade - export recovery is still uneven.

Thailand and Philippines have surprisingly experienced a huge surge in intra-regional exports, while Malaysia and Singapore have experienced a drop. Thailand saw a 33 percent rise in exports to its Asean neighbors in the first quarter of 1999, while Philippines' exports to the region increased by 30 percent in the first half of this year.

Trade figures from seven Asean countries - excluding Cambodia. Laos and Burma - show that the rate of growth of total Asean exports fell by 5.6 percent last year. This is a trade decline amounting to some $20 billion. Intra-regional exports last year totaled $73 billion compared to $87 billion in 1997.

At last week's meeting Asean members also endorsed the concept of an ''Asean investor'', encouraging Asean countries to treat other Asean investors as national investors would be treated. The agreement will make it possible for investors of an Asean country to take equity in a company which is usually reserved for locals, thus being treated as a national of their own country.

According to a top economist of Asean, details of this sensitive agreement have yet to be sorted out. In an interview with Singapore's Business Times, Asean deputy secretary-general Suthad Setboonkarng said through this agreement, ministers want to send out the message that Asean is a region open to investment.

''We have instituted what we call an Asean investor,'' he said. ''When we say a national requirement, this can now be substituted for an Asean country. Say, in Indonesia, there is a requirement for 51 percent local ownership, now it will mean Asean ownership. This kind of equity holding under the Asean investor [policy] allows the investor to go into most of the industries in Asean countries.''

The latest agreement forms one of the three pillars of the Asean Investment Area program which was launched two years ago to promote Asean as a single investment destination for foreign investors. This policy involves liberalization of Asean investment policies, promoting the region as an investment destination and facilitating the entry of investors.

The Asean investor policy is designed to kick-start investments in the area which have declined since the economic crisis hit the region in mid-1997.

This new policy will also allow third country investors to access Asean countries through an Asean joint venture partner. For instance, Suthad explains, in Vietnam certain industries require 60 percent local ownership. This 60 percent, instead of being filled by a Vietnamese, can be taken up by an Asean investor. It could also then be a joint-venture with a non-Asean partner.

(Inter Press Service)

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©1999 Asia Times Online Co., Ltd.