Disadvantages of free trade to smaller countries like vn

The creation of the ASEAN Free Trade Area (AFTA) was agreed at the 1992 ASEAN Summit in Singapore. The main objectives of the AFTA are to:

• create a single market and an international production base;

• attract foreign direct investments; and

• expand intra-ASEAN trade and investments.

AFTA was also created as a response to other emerging regional groupings, such as the North American Free Trade Area (NAFTA) and the expansion of the European Union (EU). It was also to leverage on the huge potentials and complementarities that exist in the region in order to strengthen and deepen intra-ASEAN industrial linkages including creating strong and competitive in small and medium enterprises.

The liberalisation of trade in the region through elimination of both intra-regional tariffs and non-tariff barriers had contributed towards making ASEAN's manufacturing sectors more efficient and competitive in the global market. As a result, consumers are able to source goods from the more efficient producers in ASEAN, thus creating a robust intra-ASEAN trade.

Common Effective Preferential Tariff (CEPT) Scheme

The primary mechanism for achieving the goals of AFTA is the Common Effective Preferential Tariff (CEPT) Scheme which established a phased schedule in 1992 to increase the “region’s competitive advantage as a production base for the world market”. The gradual reduction and elimination of intra-regional tariffs within ASEAN is done based on the level of sensitivity of the products to the respective ASEAN Member States (AMS) domestic industry.

Unlike the EU, AFTA does not apply a common external tariff on imported goods. Each ASEAN member may impose tariffs on goods entering from outside ASEAN based on its national schedules. However, for goods originating within ASEAN, ASEAN members are to apply a tariff rate of 0 to 5 per cent (the more recent members of Cambodia, Laos, Myanmar and Viet Nam, also known as CMLV countries, were given additional time to implement the reduced tariff rates).

The rapid economic growth experienced by the region in the early 1990s, also led to Economic Ministers advancing the end date to realise the duty reduction to 0-5 per cent to 2003 from the original deadline of 2008. This timeline was further advanced to 2002 as part of the 1998 Bold Measures in response to the 1997 financial crisis. The Economic Ministers further agreed to eliminate import duties on all products except for a small number of sensitive products by 2010 for Brunei, Indonesia, Malaysia, the Philippines, Thailand and Singapore and 2015 for Cambodia, Lao PDR, Myanmar and Viet Nam.

ASEAN Trade in Goods Agreement (ATIGA)

The ASEAN Economic Community (AEC) was first mooted at the Bali Summit in October 2003 where the ASEAN Leaders declared that the AEC shall be the goal of regional economic integration by 2020. However, at the 12th ASEAN Summit in January 2007, the ASEAN Leaders affirmed their strong commitment to accelerate the establishment of the AEC by 2015 with the goal to transform ASEAN into a region with free movement of goods, services, investment, skilled labor and freer flow of capital.

Reviewing and enhancing the CEPT Scheme was one of the key measure stipulated under the AEC 2015 to create free flow of goods in the region. The CEPT Scheme was then superseded by the new agreement namely as the ASEAN Trade in Goods Agreement (ATIGA) in 2010.

ATIGA was signed in Hua Hin, Thailand on 26 February 2009 during the 14th ASEAN Summit Meeting and came into force on 17 May 2010. The objectives of ATIGA are:

• to be on par with key principles of the Trade In Goods (TIG) Agreements with Dialogue Partners;

• set out disciplines in implementing the commitments and obligations in ASEAN such as elimination and reduction of import duties, removal of Non-Tariff Barriers (NTBs) and enhanced transparency in the concessions granted;

• ensure consistency of the provisions that are currently stated in the various agreements, documents, decisions of the AFTA Council and the ASEAN Economic Ministers (AEM) Meeting; and

• provide a legal framework that will realise the free flow of goods in the region, with a view to establishing a single market and production base by 2015.

The ATIGA value-adds to the CEPT Scheme in terms of inclusion of disciplines on Technical Barriers to Trade (TBT), Sanitary and Phytosanitary (SPS) Measures as well as Temporary Modification and Suspension of Concessions. The Article on Temporary Modification and Suspension of Concessions provides guidelines for compensation as a remedy for losses arising from any modification of existing commitments.

The ATIGA enhances the CEPT Scheme with new initiatives such as:

• comprehensive coverage in Trade in Goods;

• consolidated and streamlined rights and obligations;

• full tariff reduction schedules;

• streamlined provisions on modification of concessions and trade remedies;

• non-tariff measures;

• trade facilitation and related chapters; and

• trade repository.

There are many benefits of ATIGA. Among them are:

• minimise barriers and deepen economic linkages among AMS;

• lower business costs;

• increase trade, investment and economic efficiency;

• create a larger market with greater opportunities and larger economies of scale for the businesses of AMS; and

• create and maintain a competitive investment area.

Tariff Elimination

Effective 1 January 2010, Malaysia with five other ASEAN Member States (which are Brunei Darussalam, Indonesia, the Philippines, Singapore and Thailand) is a complete free trade area. These countries have eliminated import duties on 99 per cent of products in the Inclusion List (except for products listed in the Sensitive and Highly Sensitive Lists).

Today, the ASEAN-6 has 99.20 per cent of tariff lines in the Inclusion List at 0% import duty. This means that, only 0.35 per cent of the tariff lines in the Inclusion list have import duties.

For CLMV, 90.90 per cent of the tariff lines in the Inclusion List are already at 0% import duty.

Therefore, on the average, ASEAN member states have 96.01 per cent tariff lines at 0% import duty according to the ATIGA Tariff Schedule of 2016.  

Table 1: Number of Tariff Lines at 0% in the ATIGA Tariff Schedule of 2016

Malaysia has eliminated duties on 98.74 per cent of its tariff lines in our ATIGA Tariff Schedules for 2016. We now only have 73 tariff lines or less than 1 per cent (0.59 percent) that have import duties ranging from 5% to 20% covering tropical fruits, tobacco and highly sensitive products (rice products) . Malaysia has placed 82 Tariff Lines (TLs) which comprise of alcoholic beverages and arms weapons in the General Exclusion List (GEL). These products are not subject to import duties reduction or elimination.

Based on the commitments under AFTA and ATIGA, CLMV eliminated duties on all products in 2016 with flexibility of 7 per cent of tariff lines up to 2018.

With the reduction and elimination of the import duties, producers/manufacturers can afford to buy raw materials at a cheaper price and better quality from ASEAN countries. This would lead to the reduction in costs of production due to the elimination and reduction in tariff. As a result, prices of the finished products will be more competitive not only within ASEAN Member States but with other countries as well. With larger scale of production and 625 million ASEAN populations, it provides broader market access to producers/manufacturers.

Intra-ASEAN Trade and Investment

The efforts taken under the AEC have brought beneficial impacts to all ASEAN Member States. ASEAN’s economy has recorded a positive development whereby the average growth for 2007 to 2015 is 5.1 per cent. This was a significant achievement for ASEAN in comparison with other regions in the world. Collectively, ASEAN is the seventh largest economy with US$2.6 trillion Gross Domestic Product (GDP).

The region’s growth rooted from the substantial intra-ASEAN trade activity with the value recorded at US$543.7 billion or 24 per cent from the grand total of ASEAN’s trade. Furthermore, ASEAN has successfully attracted foreign direct investment (FDI) from year to year and for 2015, the total net inflow of FDI into ASEAN amounted at US$119.9 billion.

What are the negative effects of free trade?

What are the 3 pros and 3 cons of free trade?

What is free trade and its advantages and disadvantages?

Does Vietnam gain or loss from trade?