ASEAN & Its Achievements

CHAPTER 1INTRODUCTION

INTRODUCTIONHumans have interacted over long distances for thousands of years. Philosophy, religion, language, the arts and the other aspects of culture spread and mixed as nations exchanged products and ideas. According to sociologists Martin Albrow and Elizabeth king all those processes by which the peoples of the world are incorporated into a single world society is said to be globalization. Today the changes that we are going through are global in scope, revolutionary, fundamental, and structural in content. As countries are speeding up their openness, there have been increasing concerns related to the globalization and its impacts on issues such as economic growth, inequality, regional differences, cultural dominance, environment or economic integration.The term economic integration and economic cooperation are often used synonymously. But these two concepts are different. Regional economic cooperation is an evolutionary process consisting of several stages. Economic integration represents the most advanced or ultimate stage of economic cooperation. The world is now considered as one global village. Globalization is a new phenomenon. There is an intricate relationship between regionalization and globalization.The effectiveness of regional governance arrangements has been recognized since the end of the Second World War. Now regionalism has emerged as one of the dominant themes of World politics in the post-Cold War era. In this world of globalization, the nature of competition presses towards the formation of larger units, both for economic efficiency and to ensure the political power necessary to bargain effectively over the rules and institutions that govern the world economy. European Union, NAFTA, ASEAN are the examples of state-driven integration policies which are effectively responding to the challenges of international competition. Economic integration that encompasses broad areas of socio-political, economic and cultural links with Regional integration was traditionally seen as a harmonization of trade policies leading to deeper economic integration, with political integration as a possible future result. The concept of regionalism refers to a transformation of a particular region from relative heterogeneity to increased homogeneity with regard to a number of dimensions, the most important being culture, security, economic policies and political regimes nations joining together in a forum generally belongs to one or several regions.The Association of Southeast Asian Nations (ASEAN), established in 1967 mainly with a political objective of maintaining peace and stability in the region, has been growing rapidly as one of the important regional organizations of the world. It comprises Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand, recently Vietnam, Myanmar, Laos and Cambodia. Some of the ASEAN member countries are known as important world producers of industrial parts and materials, and manufactures goods. Regarding level of development, Singapore has been considered as the leading newly industrializing countries (NICs) of Asia and economically most developed countries of Asia after Japan. The so-called near-NICs comprising Malaysia, Thailand are followed by Indonesia, Philippines and Vietnam. The remaining countries, Myanmar, Laos and Cambodia are also performing better than the past. Recently, except Myanmar, Laos and Cambodia, the ASEAN member countries have been actively participating in establishing of full-blown ASEAN free trade area (AFTA). However, it has been a long way, because it took about 25 years for ASEAN to reach this practical free trade initiative with an objective of growth in regional investment, production and trade.

1.1 OBJECTIVE OF THE STUDY 1. To study about ASEAN2. To know about its structure and mechanism3. To study about ASEANs achievements4. And to know about recent trends in economic relations with India.

1.2 METHODS OF RESEARCH This project is purely based on secondary data.

1.3 SIGNIFICANCE OF THE STUDY This study is the history and evolution of ASEAN, describe the structures and mechanisms that guide the work of ASEAN, review some of the mechanisms for social development organizations to be involved at the level of ASEAN, and look at the opportunities for interaction by civil society organizations with the ASEAN secretariat.

1.4 LIMITATIONS Due to time and page constrain project report could not cover all the contents of the given topic (ASEAN & its Achievements)

1.5 CHAPTER SCHEMEThis study consist of the following chaptersCHAPTER 1: Introduction1.1 Introduction1.2 Objective of the Study1.3 Significance of the Study1.4 Method of StudyCHAPTER 2: Association of Southeast Asian Nation (ASEAN)2.1 Establishment of ASEAN2.2 Aim and Objective of ASEAN Free Trade Area (AFTA) 2.3 Structure & Mechanisms 2.4 The ASEAN Secretariat

CHAPTER 3: AFTA & CEPT 3.1 Why Free Trade rather than Protectionism? 3.2 Original & Revised Tariff Reduction Schedule: CEPT

CHAPTER 4: Achievements of ASEAN Free Trade Area (AFTA) 4.1 Achievements of AFTA4.2 Japan &AFTA4.3 The Outlook4.4 Distribution effectCHAPTER 5: Trends in India-ASEAN Economic RelationCHAPTER 6: Conclusion6.1 Will ASEAN succeed in building am ASEAN Economic Community by 2015?6.2 Conclusion

CHAPTER 2Association of Southeast Asian Nation (ASEAN)

2.1 Establishment of ASEAN

The Association of Southeast Asian Nations (ASEAN), established in 1967 mainly with a political objective of maintaining peace and stability in the region, has been growing rapidly as one of the important regional organizations of the world. It comprises Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand, recently Vietnam, Myanmar, Laos and Cambodia. Some of the ASEAN member countries are known as important world producers of industrial parts and materials, and manufactures goods. Regarding level of development, Singapore has been considered as the leading newly industrializing countries (NICs) of Asia and economically most developed countries of Asia after Japan. The so-called near-NICs comprising Malaysia, Thailand are followed by Indonesia, Philippines and Vietnam. The remaining countries, Myanmar, Laos and Cambodia are also performing better than the past. Recently, except Myanmar, Laos and Cambodia, the ASEAN member countries have been actively participating in establishing of full-blown ASEAN free trade area (AFTA). However, it has been a long way, because it took about 25 years for ASEAN to reach this practical free trade initiative with an objective of growth in regional investment, production and trade.

The main focus of this paper is to examine the achievement and outlook of AFTA from the aspects of tariff reduction process and some of its effects. Accordingly, as groundwork, the first two sections1 and 2 introduce the objectives of AFTA and the declining role of tariff, respectively. Section 3 explains the tariff reduction schedule under CEPT in detail. The achievement of AFTA from the aspect of tariff reduction is discussed in section 4. The relation of Japan and AFTA is also considered briefly, in section 5. Finally, the outlook of AFTA is examined in the last section.

2.2 Aim and Objectives of AFTA.

In 1992, ASEAN leaders made an announcement of a plan for establishing an ASEAN Free Trade Area (AFTA) within 15 years. At that time the size of AFTA was about 330 million populations and a combined GNP of about US$300 billion. The explicit as well as implicit reasons for formation of AFTA can be summarized as follows:

1. To speed up the slow progress of trade liberalization activities among ASEAN member countries under the Preferential Trading Agreements (PTA), which had begun in 1977.

2. To have responsive strength toward European Union (EU), North American Free Trade Area (NAFTA), and Uruguay Round of the GATT and WTO. 3. To have appropriate responsive strength in line with the trend of world economy which has been moving towards the formation of regional trading blocs.4. To strengthen the responsive and adjustable ability in line with drastically changing economies of ASEAN member countries.

5. To have better rational allocation of resources within the ASEAN member countries.

6. To strengthen the ASEAN competitiveness in world trade.

7. To maintain and accelerate the inflow of foreign direct investment. toward ASEAN member countries, and

8. To promote the intra and extra regional trade of ASEAN.

It is needless to mention that the work of measuring achievements of AFTA has to be based on investigating the fulfillment of above mentioned objectives. However, this paper attempts to examine only the achievement of AFTA from the aspects of tariff reduction. Before the exploration CEPT tariff reduction schedule and achievement of free trade targets, it would be appropriate to examine first Why global economy has been moving towards the formation of regional free trade areas?

2.3 STRUCTURES AND MECHANISMS

A. The ASEAN Summit

The highest decision-making organ of ASEAN is the Meeting of the ASEAN Heads of State and Government. This ASEAN Summit is convened every three years with Informal Summits held in between. The 6th ASEAN Summit was in Hanoi in 1998. The 7th ASEAN Summit will be in Brunei in 2001. The 3rd Informal Summit was held in the Philippines in 1999 and Singapore will be hosting the 4th Informal Summit in November this year. Hosting of the summits follow alphabetical rotation. There is a suggestion that since ASEAN leaders now meet regularly either in formal or informal summits, ASEAN should just have annual summits without any formal/informal distinction.

B. ASEAN Ministerial Meetings

There is also the ASEAN Ministerial Meeting (AMM), an annual meeting of ASEAN ForeignMinisters which is next to the ASEAN Summit in the level of decision-making. Ministerial meetings on several other sectors are also held: agriculture and forestry, economics, energy, environment, finance, information, investment, labour, law, regional haze, rural development and poverty alleviation, science and technology, social welfare, transnational crime, transportation, tourism, youth, as well as meetings of the ASEAN Investment Area (AIA) Council, and the ASEAN Free Trade Area (AFTA) Council. ASEAN Ministers Responsible for Higher Education will be convening their inaugural meeting later this year in the Philippines.

C. ASEAN Standing Committee

The ASEAN Standing Committee is composed of the Directors-General of the ASEANDepartments of the respective Ministries of Foreign Affairs. They meet as a body standingin for the ASEAN Foreign Ministers who meet annually in the AMM. Chairmanship of theASEAN Standing Committee rotates annually in concomitance with the hosting of the AMM.This year, the chair is Thailand and at the 33rd AMM in July 2000, chairmanship was handed to Vietnam. The ASEAN Standing Committee reports directly to the ASEAN Foreign Ministers who in turn report to the Heads of State/Government.

D. Committees of Senior Officials and Technical Groups

Supporting these ministerial bodies are 29 committees of senior officials and 122 technical working groups. The committees of senior officials are called Senior Officials Meetings (SOM), meeting regularly during the year or on an ad hoc basis preparing for events or other higher-level meetings.

Pertinent to the work of ICSW is the Meeting of the ASEAN Ministers on Rural Development and Poverty Eradication (AMRDPE) or the Senior Officials Meeting on the same (SOMRDPE) and the Meeting of the ASEAN Ministers Responsible for Social Welfare (AMRSW).

ASEAN has several specialized bodies and arrangements promoting inter-governmental cooperation in various fields. These are the ASEAN University Network, ASEAN-EC Management Centre, and ASEAN Centre for Energy, ASEAN Agricultural Development Planning Centre, ASEAN Earthquake Information Centre, ASEAN Poultry Research Training Centre, and ASEAN Regional Centre for Biodiversity Conservation, ASEAN Rural Youth Development Centre, ASEAN Specialized Meteorological Centre, ASEAN Tourism Information Centre and ASEAN Timber Technology Centre.

In addition, ASEAN promotes cooperative activities with organizations with related aims and purposes such as ASEAN-Chambers of Commerce and Industry, ASEAN Business Forum, ASEAN Tourism Association, ASEAN Council on Petroleum, ASEAN Ports Association, ASEAN Vegetable Oils Club and the ASEAN-Institute for Strategic and International Studies (ISIS). Furthermore, there are 53 non-governmental organizations that have formal affiliation with ASEAN. The 53 non-governmental organizations are technical and specialist groups, very few of which relate to issues of social development.

2.4 THE ASEAN SECRETARIAT

A. Establishment

In support of the work of ASEAN, the Permanent Secretariat was established in February1976 due to the increased need in ASEAN for a central administrative organ to provide greater efficiency in the coordination of ASEAN organs and implementation of ASEAN projects and activities. This was later referred to as the ASEAN Secretariat. The Secretariat has its seat in Jakarta, Indonesia and is headed by the Secretary-General.

An annual budget for the Secretariat is submitted to the ASEAN Ministerial Meeting for approval. This includes capital outlay and recurrent expenditure (salaries and allowances of all secretariat personnel, utility charges, travelling expenses and other maintenance and administrative expenses). The Host Country (Indonesia) grants to the Secretariat, theSecretary-General and the staff, privileges and immunities for the performance of their duties and functions.

B. Staffing and Organizational Development

The Secretary-General

The Secretary-General is appointed by ASEAN Foreign Ministers upon nomination by a member country on a rotational basis in alphabetical order. The tenure for the secretary general is five years, which may be extended. The function and powers of the secretary general are numerous and wide-ranging. Currently, the Secretary-General of the ASEAN. Secretariat is Mr. Rodolfo C. Severino, Jr. from the Philippines. He was formerly Philippine Ambassador to Malaysia, then Undersecretary of Foreign Affairs before becoming ASEAN Secretary-General in January 1998.

Secretary General of ASEAN is appointed on merit and accorded ministerial status. TheSecretary-general is mandated to initiate, advise, coordinate and implement ASEAN activities.The members of the professional staff of the ASEAN Secretariat are appointed on the principle of open recruitment and region-wide competition.

Other Staff

Other staff of the ASEAN secretariat includes 2 Deputy Secretaries-General, 4 Directors, 14 Assistant Directors and Programme Coordinators, 23 Senior Officers, 27 ProgrammeOfficers, 28 Assistant Programme Officers and other staff that may be deemed necessary.There is a total of 99 mandated staff in the organization.

Organizational Development

The Sixth ASEAN Summit in 1998 mandated the review of the overall organizational structure of ASEAN to further improve efficiency and effectiveness, taking into account the expansion of ASEAN activities, the enlargement of ASEAN membership, and the current regional situation. As part of the review, the Summit also decided to review the role and functions and capacity of the ASEAN Secretariat to meet the increasing demands of ASEAN and to support the implementation of the Hanoi Plan of Action. From December 1998 to April 1999, the ASEAN Secretariat underwent this review which resulted in a recommendation to combine the Divisions of Economic Cooperation and Functional Cooperation into a bigger Bureau called Economic and Functional Cooperation Bureau headed by a Director for Economic and Functional Cooperation. As of the first quarter 2000, the structures have not yet been fully combined and the re-organization is still ongoing. Currently, the Director for the Bureau is Dr. Azmi Mat Akhir. For purposes of this paper, the Functional Cooperation and Economic Cooperation divisions will be described separately.

The ASEAN Standing Committee agreed that the ASEAN Secretariat should function as a coordinating Secretariat to help facilitate effective decision-making within and amongstASEAN bodies. The Secretariat would place a greater emphasis on substantive matters, while its tasks on servicing various meetings would be precisely defined.

The ASEAN Secretariat has now put in place a functional structure. One of the two Deputy Secretaries-General has assumed the role of chief-of-staff responsible for corporate affairs focusing on the internal management of the Secretariat. The other Deputy Secretary-General serves as chief operations officer in support of the Secretary-General in operations and policy matters.

Corporate affairs include the following areas: administration; finance and funding; human resources; public information; information technology and special projects. The operational bureaus will include the Task Force for Finance Cooperation and Macroeconomic Surveillance; Economic and Functional Cooperation; Trade, Investment and Services; and Programme Coordination and External Relations.

C. The Four Divisions

Until early 2000, ASEAN was divided into 4 major focus areas:1. Functional Cooperation2. Political and Security Cooperation3. Economic Cooperation4. External RelationsProgrammes under each of these areas are governed and guided by several operating treaties, declarations, accords, statements and plans of action.

Functional Cooperation

The ASEAN leaders resolved in 1995 to elevate functional cooperation to a higher plane. The Framework for Elevating Functional Cooperation to a Higher Plane was adopted in1996 with a theme: "Shared prosperity through human development, technological competitiveness and social cohesiveness." Functional cooperation is guided by the following plans:1. 2. ASEAN Plan of Action on Social Development2. ASEAN Plan of Action on Rural Development and Poverty Eradication3. ASEAN Plan of Action on Culture and Development4. ASEAN Plan of Action on Science and Technology5. ASEAN Strategic Plan of Action on the Environment6. ASEAN Plan of Action on Drug Abuse Control7. ASEAN Plan of Action in Combating Transnational Crime8. Action Plan on Social Safety Nets

In 1997, the ASEAN leaders adopted the ASEAN Vision 2020, which called for ASEAN partnership in dynamic development aimed at forging closer economic integration within the region. The vision statement also resolved to create a stable, prosperous and highly competitive ASEAN Economic Region, in which there is a free flow of goods, services, investments, capital, and equitable economic development and reduced poverty and socioeconomic disparities. The Hanoi Plan of Action, adopted in 1998, serves as the first in a series of plans of action leading up to the realization of the ASEAN vision. Under Functional Cooperation lies the Committee on Social Development. Chairmanship of the Committee on Social Development rotates in alphabetical order. Currently, the Chair is Vietnam. In the coming months, the Committee on Social Development will be re-structured and some of the sub-committees under it will be elevated to Committees while some will turn into Senior Officials Meetings or Ministerial Meetings.

Political and Security Cooperation

Two of the main treaties guiding the work on Political Cooperation are the Treaty of Amity and Cooperation in Southeast Asia and the Treaty on the Southeast Asia Nuclear WeaponFree Zone.

There is also the ASEAN Regional Forum that has continued to develop as a multi-lateral forum for political and security consultations and cooperation. The ARF process strengthens the commitment among the members to maintain peace and stability in the region. Some of the recent activities of the ARF include meetings on Confidence-Building Measures inHonolulu and Bangkok; a meeting on Disaster Relief in Moscow; a Track II Conference onComprehensive Security and Cooperation in Asia-Pacific in Vladivostok and a seminar onPreventive Diplomacy by the Council for Security Cooperation in the Asia-Pacific.

Other work under Political Cooperation includes the organization of the ASEAN Summit, political consultations and cooperation with the United Nations agencies such as UNESCO,UNDP and UNICEF. However, ASEAN as a body does not as yet have a seat in the UnitedNations assembly.

Economic Cooperation

The areas under Economic Cooperation include:i. Financeii. Tradeiii. Investmentiv. Industryv. Servicesvi. Electronic Commercevii. Transport and Communicationsviii. Energyix. Development of Growth Areasx. Tourismxi. Intellectual Propertyxii. Small and Medium Scale Enterprisesxiii. Food, Agriculture and Forestry

External Relations

ASEAN has active relations with Dialogue Partners and other international organizations.These are:i. ASEAN-Australiaii. ASEAN-Canadaiii. ASEAN-Chinaiv. ASEAN-EUv. ASEAN-Indiavi. ASEAN-Japanvii. ASEAN-Republic of Koreaviii. ASEAN-New Zealandix. ASEAN-Russiax. ASEAN-United Statesxi. ASEAN-UNDPxii. ASEAN-Pakistan (Sectoral dialogue)

One of the recent developments is the ASEAN plus 3 processes where the ASEAN Heads ofState and Government meet with their counterparts from China, Japan and the Republic ofKorea. Again, the agenda of the meetings in the ASEAN plus 3 revolve around economic and trade issues.

In the recent years, there have also been communications with the Organization forEconomic Cooperation and Development (OECD), South Asia Association for RegionalCooperation (SAARC), Gulf Cooperation Council, the Rio Group, South Pacific Forum,Asian Development Bank (ADB), the Andean Community and the Hanns Seidel Foundation.ASEAN also maintains collaboration with the UN specialized agencies in their respective fields, such as WHO (health matters), UNAIDS (HIV/AIDS), UNDCP (drug control), UNICEF (childrens matters), UNIFEM (womens matters). Recently, the Fifth Consultative Meeting among Executive Heads of Sub-regional Organizations and ESCAP identified nodal officers at the ESCAP, ASEAN and SAARC Secretariats to coordinate initiatives in the areas of international and regional trade policy; e-commerce, social development, the environment, and statistics, among others.These multi-lateral and bi-lateral relations are strengthened by meetings when and where possible, where various regional and international issues are discussed and plans of collaboration clarified or developed.

CHAPTER 3AFTA & CEPT

3.1 Why Free Trade rather than Protectionism? Generally, application of protection policies involves with positive and negative results. Although the identification of impact of trade protection measures on domestic economy is difficult in practice, we can simplify the positive and negative impacts as depicted in diagram (1). Positive results comprise such as protecting countrys infant industries and international

Globalization and Tariffs

Daigram1

firms from unfair competition as well as increasing tax revenue. But on the other hand, over protection by tariff and non-tariff barriers hinder the progress of quality of domestic products and consequently reduce the strength of competitiveness and size of market. Moreover, over protection of countrys international firms also leads to poor progress in technology and management techniques within the country. Since around the end of 1980s, protectionism has played lesser role in protecting of domestic and international firms due to the drastic changes in global economic and political environment. For example, emergence of liberal trade regimes, greater factor mobility, progress of transport and communication, homogeneous life-style, border trade, export-processing zones and growth triangles, and growth of international and network firms in a global scale has been reducing the role of tariffs and non-tariff barriers. It is also widely known phenomenon that application of over protection measures for trade and industrial development is one of the sources of delay for the developing economies switching from import substitution to export-oriented. As can be seen in appendix table, almost all the ASEAN member countries are establishing Growth Triangles and Quadrangles in order to achieve the better free trade and investment activities with their neighbors. Moreover, appendix diagram also explain the economic linkage of ASEAN with Japan, USA, China and Asian NIEs, which has been reducing the important role of tariff and non-tariff barriers. This changing economic environments within and outside ASEAN member countries make the tariff and non-tariff barriers less important and consequently pave the way to the establishment of free trade area.

3.2 Original and Revised Tariff Reduction Schedules: CEPTIn 1993, a Common Effective Preferential Tariff (CEPT) schedule began to apply as an instrument of AFTA. This CEPT scheme covered all processed agriculture goods and all manufactured goods having an ASEAN (one country or more) content of 40 or more. Unprocessed agriculture goods, services and capital goods will be also included subsequently. According to the 1992 agreement, CEPT schedule has two tracks: (1) fast track and (2) normal track. A simple diagrammatic explanation for original CEPT tariff reduction schedule for fast track and normal track is given in diagram (2).

1. Fast Track

Under the fast track, which covered designated product groups, the full fledged achievement of free trade target among ASEAN member countries will take place by 2003, that is within ten years. The 15 product groups under fast track, were cement, chemicals, ceramics and glass product, copper cathode, electronics, fertilizers, pharmaceuticals, plastics, precious metals, rubber product, leather products, pulp, textile, vegetable oil, wooden and rattan furniture. The products with tariff rates over 20and 20 or below will be reduced the tariff under different schedules. For the products with the tariff rates of over 20 will be reduced to 05 by 2003, that is within ten years. The point of diagram-2 represents this condition.

For the products with the tariff rates of 20 or below will be reduced to 05 by the year 2000 that is within seven years. The point of diagram-2 represents this condition.

Original Tariff Reduction Schedule

Diagram2

Source: Modification based on Mohamed Ariff (1993), Florian A. Alburo (1995)and Gerald Tan (1996)

Note: Rate of tariff reduction under normal track can be formulated as follows: (a)Annual rate of reduction (over 20)t20 /58years, (b)Minimums 5 quantum per reduction (20 and less)200 /7years

2. Normal Track

Under the normal track, as in the fast track, the products with tariff rates of over 20 and 20 or below are also having different schedules.

For the products with tariff rates of over 20 are to be reduced in four stages:(i) to be reduced to 20 within five to eight years, point and of diagram-2(ii) to be reduced to 15 by 2003. (iii) to be reduced to 10 by 2005,and(iv) finally to be reduced to 05 by 2008,point of diagram-2.

For the products with tariff rates of 20 and below will be reduced to 05 by 2003. The point of diagram-2 represents this condition.

Moreover, import quotas and non-tariff barriers are also prohibited for the items under tariff reduction schedule of CEPT. But, Exclusion Lists are permitted for all member countries for their strategic domestic industries, severe foreign exchange shortages, etc.

Since then, revised CEPT schedule was approved in 1995 with the following objectives:-(i) Shortening the completion time frame of tariff reduction from 15 to 10 years (ii) Transferring the products from Temporary Exclusion List to Inclusion List in 5 equal installment starting from 1 January 1996,and(iii) Covering unprocessed agriculture products in the new category called the Sensitive List under CEPT scheme.

In detail, the timetable for completion of CEPT tariff reduction schedule under AFTA was revised as follows.

Under the fast track, the tariff reduction, which will complete in year 2000 rather than original date 2003, are undertaken by two steps.(i) Reduction of tariff rates from over 20 to 05 by January 2000,and (ii) Reduction of tariff rates from 20 and below to 05 by 1998.

Under the normal track, which was originally scheduled to complete by 2008, the tariff reduction schedule will complete in 2003. As in the fast track tariff reductions are taken by two steps: (i) Reduction of tariff rates from over 20 to 20 by January 1998,and (ii) Reduction of tariff rates from 20 and below to 05 by January 2003.

In short, reductions of tariffs under the fast track will complete within seven years instead of the original target 10 years. For the normal track, achievement of free trade will take place within 10 years instead of the original target 15 years. A simple diagram for original and revised CEPT tariff reduction schedule is depicted in diagram-3.

Moreover, elimination of non-tariff barriers, inclusion of unprocessed agriculture products and Green Line for CEPT products are also introduced as AFTA Plus.

Original and Revised CEPT Tariff Reduction Schedule

Diagram 3

Source:Modification of Florian A.Alburos Graph (1995),note: -Original, -Revised

CHAPTER 4ACHIEVEMNTS OF AFTA

4.1 Achievements

The scheme of AFTA endorsed in January 1992 at the ASEAN summit had little preparations for rule of origin, regional content, dispute settlement procedures, etc., prior to the planned launching date of January 1, 1993. It would be appropriate to keep this point in mind when one examines the achievement of AFTA.

According to original CEPT schedule, each member country has to offer a set of product items for which will begin to reduce tariffs under the fast track and normal track programs. Among the member countries, Malaysias offered product item was the largest(11,748 items)while Thailand and Philippines offered the smallest number, 5,318 and 5,561 items respectively. The main reason for the Philippines and Thailands inactive participation under CEPT schedule is likely that they have their own unilateral tariff reduction plans which will hopefully bring many of their high tariff items below 20 beginning in 1993.The extent of offered tariff reductions under AFTA looks inactive due to the existence of long exclusion list which includes items considered to be sensitive to domestic manufactures and strategic products for investment promotion. Tariff reduction item list comprises (1) inclusion list and (2) exclusion list. The exclusion list has three categories, (i) temporary, (ii) sensitive and (iii) general . Type of tariff reduction item list is given in diagram (4).

(i) Temporary exclusion list consisted of the items which will either be placed under the normal track after eight years or will be offered as fast track items at a later date. Malaysia and Philippines were in the top of the list with 1,708 and 1,199 items, respectively.

(ii) The sensitive list mainly covers the sensitive items for domestic key industries and strategic products for investment promotion.

(iii) General exclusion list included the items such as gun, ammunition and unprocessed agriculture products that are to be permanently excluded. Malaysia stands first for this general exclusion list with 952 items.

The offered item list under AFTA for tariff reduction seems inactive compared to the earlier announcement of AFTA. However, it is worthy to note that the value of the offered items was about US$9.3 billion worth of intra ASEAN trade and accounted for about 37 of total intra- ASEAN import.

Types of Tariff Reduction Item List

Diagram 4

Note: change of items from one list to another

According to the published data from ASEAN Secretariat, when AFTA was first initiated in 1993,Inclusion List consisted of 41,147 tariff lines which will reduced to 05 by the year 2008. The Temporary Exclusion List and General Exception List consisted of 3,321 and 523 tariff lines, respectively. Moreover, the accession of Vietnam to the CEPT agreement also enlarged and altered the composition of CEPT package.

As a result of revised CEPT schedule in 1995, the number of tariff lines in inclusion list increased by 3,495(8.49), that was from 41,147 to 44,642 tariff lines. The Temporary Exclusion List increased by 364 tariff lines from 3,321 to 3,685 tariff lines, and General Exception List increased by 143 tariff lines. In the Sensitive List, about 287 tariff lines were included. According to the SEAN Secretariat data of 1997, given in table (1), the ASEAN-6 had 40,755 tariff lines (93), and temporary exclusion list covered only 2376(5.3) tariff lines. Sensitive and general exception list covered 219 (0.4) and 496 (1.3) respectively. These figures give the impression that the problem of exclusion list seems negligible, although we do not have the data for the estimated value of exclusion list items.

TABLE 1

1997 DISTRIBUTION OF TARIFF LINES

BY COUNTRY AND BY CATEGORY

COUNTRYInclusionTemporarySensitive listGeneral

listexclusion listexception list

Brunei606022014209

Indonesia64407522345

Malaysia868051614660

Philippines49497682928

Singapore573000128

Thailand8996111726

ASEAN-6407552367219496

(of Total) 93 5.4 0.5 1.4

Source:ASEAN Secretariat.

Concerning average tariff rate reduction by country, the ASEAN average tariff rate in 1996 was about 7.66 and it will fall to 4.02 by year 2000 and then again to 2.89 by year 2003. Reduction of tariff is rather difficult for the countries with high tariff rates. Indonesia and Thailand with double digit tariff rates have been facing this problem. But, for the whole ASEAN, about 87.7 of total tariff lines under the Inclusion List will be in the 05 level by year 2000, rather than 2003.

Moreover, the average CEPT tariff rates by country between the year 1997 and 2003, given in table(1), also gives the positive impression. For example, in 1997, Indonesia (8.53), Philippines (9.20) and Thailand (13.10) were having average CEPT tariff rate of over 5. But, these rates will be declined to less than 5 in year 2001 in almost all the ASEAN-6, except Thailand. The CEPT target will be fully achieved in 2003. Therefore, completion of tariff reduction by 2003 for ASEAN member countries would not be a difficult one.

Table 2

Country1997199819992000200120022003Reduction

Brunei Darussalam1.581.211.160.900.870.870.840.74

Indonesia8.537.055.824.924.924.203.724.81

Malaysia4.043.413.012.582.412.271.972.07

Philippines9.207.716.795.454.964.683.725.48

Singapore

Thailand13.1010.45 9.657.297.275.934.638.47

Source:ASEAN Secretariat.

Regarding average tariff reduction by products under received CEPT schedule, given in appendix table (2), the targets are expected to achieve faster than the target date. For example, the products under: (i) machinery and electrical appliances (2000) (ii) mineral products (1996) (iii) base metals and metal articles (2000) (iv) chemicals (1996) (v)plastics (2000) (vi) live animals (2000) (vii) vegetable products (2000)fats and oils (1998) (viii) hides and leathers(1998) (ix) pulp and paper(2000) (x) textiles and apparel (2000) (xi) stones, cement and ceramics(2000) (xii)gems(1999) (xiii)vehicles (2000) (xiv)optical and musical instruments (1998)and (xv)antiques and work of arts, totaling about 14 product groups, will be achieved their targets in year 2000, rather than 2003. The remaining six groups of product, prepared foodstuffs (2002), wood and wood articles (2002),foot-wear (2003), Arms (2003), miscellaneous manufactures (2003) and unprocessed agricultural products (2002)will reach their free trade target level at a later date.

Therefore, it is relevant to conclude that the AFTA objective of reducing intra-ASEAN tariffs to 05 is feasible. Moreover, tariffs are more likely to fall to zero rather than 5 because; the cost of tariff collection and administration would exceed the tariff revenue.

4.2 Japan and AFTA

Japans contributing to economic development of ASEAN and other countries of Asia has been gaining increasing importance, heretofore. The centerpiece of Japanese economic assistance to ASEAN is the new Asian Industrial Development Plan (AID). The official loans, export promotion policies, and technology transfer through public and private sector under AID have stimulated the development of small and medium sized industries in ASEAN. Moreover, the economic role of Japan in the region has been widening through investment, trade, tourism, technology transfer, management, marketing, and work culture. Therefore, it is needless to point that the role of Japan in AFTA is really important.

During the October 1992, Japanese Minister of Foreign Affairs expressed the positive impression on the idea of AFTA as follows.

It demonstrates a regional development model of free and open economies to the world, and the Japanese government will try to aid its early and accelerated materialization as much as we can. And he also promised the followings:

1. To hold the seminars for ASEAN government to invite the investment of Japanese enterprises,

2. To cooperate with the professional training for engineers and middle level manager of ASEAN economies,

3. To assist the supporting industries for subcontracting in ASEAN,

4. To promote the technology transfer to ASEAN enterprises, and

5. To extend the bilateral aid program called Green AID Program to prevent industrial pollution to all the countries in ASEAN. However, Ichimura (1998, p.229) stated in his comment that The cooperation of Japanese government towards AFTA remains only lip service at this stage. More fundamental contributions would be to increase Japanese import or rather take radical step for increasing the import of manufactured goods and services from other Asian countries. This is because, according to the finding of National University of Singapore, even if all the custom duties are eliminated, intraregional trade would increases by 3.1 only. Therefore, Japans active cooperation towards ASEAN and expansion of its import form ASEAN member countries are really important.

4.3 The Outlook

The general level of tariff rates in ASEAN member countries are low compared to other developing countries standard. Moreover, ASEAN countries tariff rates have been declining steadily over time. Average nominal tariffs in Brunei and Singapore are negligible and it has declined obviously in Indonesia, Malaysia, Philippines and Thailand (ASEAN-4) as a result of unilateral trade liberalization. It is also likely that the high tariff rates are no longer needed in ASEAN, except for new members like Vietnam and Myanmar, as domestic products are becoming sufficiently competitive. Thank to existence of generally low level of tariff in ASEAN, it would be relatively easy to implement the CEPT schedule under AFTA.

As mentioned earlier, this paper does not attempt to measure the achievements related to growth of trade and specialization, inflow of foreign direct investment, improving competitiveness, etc. as a result of formation of AFTA. However, as an outlook of AFTA in general, it would be appropriate to summarize the effects of AFTA tariff reduction as follow.

Trade effectsThe Trade Effects would not be significantly high due to the long existence of extensive extra regional trade and investment linkages of ASEAN member countries. Outside the ASEAN framework, ASEAN member countries are already having long experiences of practicing unilateral trade liberalization measures. In the short-term, it is generally expected that intra-ASEAN trade would not grow significantly as a result of establishment of AFTA mainly due to having long-lasted strong extra regional trade. However, if ASEAN member countries achieve the higher stages of industrial development and income than the present, positive trade effect can be expected. The effects of trade creation and diversion are also highly discussed by many scholars. But, it seems difficult to measure the magnitudes of the effects on trade creation and diversion. However, it is likely that price and income effects under CEPT schedule would maintain the intra-regional trade.

Investment effects- Achieving free trade among ASEAN countries would provide (i) greater regional market, about 420 million population (ii) greater efficiency of production (iii) greater international competitiveness (iv) greater scale economies and (v) increase intra regional specialization. If these targets are achieved, we can expect that AFTA would bring the foreign investment opportunities in ASEAN than the past.

4.4 Distribution effect- Needles to point that there will be winners and losers among ASEAN member countries as a result of trade liberalization under AFTA. Generally, distribution of gains and losses depend on structure of export and import, share in international trade, and readiness in practicing of CEPT schedule. Moreover, one can roughly guess the likely winners and losers of ASEAN member countries for the short run basing on structure of trade and industry, and level of development.

CHAPTER 5Trends in India-ASEAN Economic Relation

TREANDSDuring the last few years, the nature and scale of India-ASEAN economic relations have expanded considerably, bringing in new avenues for economic cooperation and further consolidating the ongoing engagement. With total India-ASEAN trade at approximately US$31 billion in 2006-07, the India-Singapore Free Trade Agreement (FTA) operationalized, and negotiations underway on various bilateral (India-Thailand, India-Malaysia) and regional (India-ASEAN) FTAs, India is poised for greater economic integration with ASEAN. While justifying economic logic as the building block of India's Look East Policy (LEP), the expanded and intense economic engagements are symptomatic of (a) global economic trends and (b) emerging trends in the respective economies of India and ASEAN countries. There are two most obvious trends characterizing the changing Asian economic landscape. First, China and India have emerged as two most important drivers of economic growth in Asia, as evident from their robust annual economic growth of approximately 9 per cent, their big market size with ever-hungry consumers and their manifold increase in FDI outflows. Second, while Asia continues to be one of the largest recipients of global FDI, the continent also registered one of the largest outflows of FDI. According to the World Investment Report 2007, released by the UNCTAD, the continent received US$260 billion in FDI and invested US$117 billion in 2006 in the rest of the world. An examination of India-ASEAN relations also points towards two distinctive trends, which could facilitate India's greater economic integration and act as important incentives for ASEAN economies towards furthering economic ties with the former. The most obvious trend is the growing gap between India's exports to and imports from ASEAN. While India's trade deficit with ASEAN was a meager US$472 million in 2005-06, it shot up to approximately US$5.5 billion in 2006-07. India's imports from ASEAN countries registered a growth of 66 percent in 2006-07 compared to 2005-06, whereas India's exports only grew by 22 percent between 2005-06 and 2006-07. Such a scenario puts forth a complementary situation pitting India as a consumption driven economy against the export led ASEAN economies. The above-mentioned complementarily is also evident from the India-Thailand Early Harvest Programme (EHP). Within one year of the implementation of the EHP, India's exports to Thailand grew by around 40 percent, whereas Thailand's exports to India expanded by 120 percent. India as a huge market offers an important incentive for some ASEAN economies (Thailand, Indonesia, Malaysia) in need of external demand given continued slump in their domestic demand since the 1997 economic crisis. The World Investment Report 2007 identifies another important aspect of the Indian economy - substantial increase in the FDI inflow and equally substantial outflow of FDI led by private capital. India registered total FDI inflow of US$17 billion in 2006, registering more than 150 per cent growth from the previous year. Following a similar upward trend, India's FDI outflow increased by five times in 2006 from the figure of 2005. Interestingly, it is the private companies in India such as Tata Steel, Tata Power, Satyam, Mittal Steel, which have emerged as the main drivers of FDI outflows. The Indian private investment through mergers and acquisitions has also taken place in the ASEAN region. Besides acquiring the Anglo-Dutch steelmaker Corus Group, Tata Steel has also acquired NatSteel, Singapore's largest steel maker company and two steel rolling mills in Vietnam. Tata Power acquired two Indonesian thermal coal companies - PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia in March 2007 at the cost of US$1.1 billion. Such a trend is also noticeable among other Indian companies, which are expanding their operations in the Southeast Asian market. However, the scope of India-ASEAN economic relations is still very limited and has, of late, faced domestic challenges. There has been growing resistance from certain interest groups and lobbyists against giving further concession to ASEAN over the issue of India-ASEAN FTA in goods. The fear of severe losses to Indian farming communities and SMEs has gained further ground with the import of palm oil constituting the largest share of increased Indian import from ASEAN. Since the signing of India-ASEAN Comprehensive Economic Cooperation Agreement in 2003, more than 21 rounds of trade negotiations have already taken place but no final agreement is in sight. Moreover, India has not been able to become part of the East Asian seamless production process, which stretches from Japan in the East to Thailand or Singapore in the Southeast. As a result, India has not received much from the high-end technology application in the manufacturing process. Finally, although both bilateral trade and investment has gone up, they are still insignificant compared to the trade between ASEAN and other East Asian countries such as China and South Korea. Though both ASEAN and Indian economies have experienced large-scale FDI outflow, much of the outflow has gone to the third country, leaving bilateral scale of investment very limited.

CONCLUSION

6.1 Will ASEAN succeed in building an ASEAN Economic Community by 2015? (% of respondents)

Top-down policies from the ASEAN Secretariat are only part of the integration story. Just as important, are the bottom-up integration dynamics. Local companies are pushing into their neighboring markets. Investment flows across ASEAN borders are picking up. And people are moving across the Region in ever greater numbers. In banking, for example, even though the ASEAN Banking Integration Framework is yet to be ratified, some banks in Singapore and Malaysia are already building a pan-ASEAN presence. Companies know they will benefit from ASEAN integration agreements, but they arent waiting for them to arrive before they act. What sort of presence do companies have in the Region? Stripping out local companies from the survey, the results show that Singapore has attracted the greatest level of foreign interest. Some 84% of global companies in the survey have set up their own operations in the city state. Malaysia comes a close second, with 76% of companies opening their own operations there.

6.2 ConclusionThe difficulties likely to face by ASEAN member countries, during and after the implementation of AFTA tariff reduction goals are numerous. However, we can summarize these difficulties in general, as follows:

i. Difficulties in verifying the origin of products or rules of origin due to the increasing internationalization of production process of intermediate and finished products.

ii. Difficulties in measuring the local content of the products due to increasing nature of the products which contain wide varieties of components from different sources. But, the 40 local content rule of AFTA is lower than that of most free trade areas, which generally have about 50.

iii. The enforcement of local content rules would create the problems of Documentation and transaction cost.

iv. Diversity in initial tariff structure among ASEAN member countries would create unfairness.

v. The differences in export and investment incentives among ASEAN member countries would create unfair competition.

vi. There is still no guarantee that ASEAN countries would not do dumping activities under AFTA.

vii. Application of uniform rules under AFTA for all member countries with different levels of development and different trade and industrial structures would create unmanageable adjustment problems among ASEAN member countries.

viii. AFTA is still lacking formal dispute settlement mechanism.

ix. Differences in degree of political and economic openness among ASEAN member countries would create uneven opportunities for investment, production and trade.

x. Although, all the ASEAN member countries can achieve the tariff reduction targets, achieving expected positive economic results in trade, investment and industry etc. are still uncertain.

The difficulties for achieving numerous positive economic results after tariff reduction process under AFTA are not purely economic but also political, social and cultural problems. Having macro economic and political stability and more market friendly environments especially in Indonesia, Philippines, Vietnam and Myanmar would be the more important factors for achievement and prospects of AFTA. However, it is expected that above mentioned difficulties would not create the barriers for future development of ASEAN member countries.

BIBLIOGRAPHY

A. Reference books:i. Ariff, Mohamed,(1993),AFTA: An Outward-Looking Free Trade Agreement in Private Investment and Trade Opportunities, Economic Brief,No.4,August,East-West Center.

ii. ASEAN Secretariat,(1996),AFTA Reader, Volume IV, The Fifth ASEAN Summit, September, Jakarta, Indonesia.

iii. Cheong, Inkyo, (2000), Economic Integration in Northeast Asia: Searching for a Feasible Approach, in International Economy,No.51

B. Journal :i. http://www.europeanjournalofsocialsciences.com/issues/ejss_41_1.html

C. e-data:i. http://www.aseanindia.com/ii. http://commerce.gov.in/trade/ASEAN-India%20Trade%20in%20Goods%20Agreement.pdfiii. http://www.mpwt.gov.la/attachments/article/543/Master%20Plan%20on%20ASEAN%20Connectivity.pdfiv. http://www.academia.edu/2443267/Assessing_the_Effectiveness_of_the_ASEAN_University_Network_Knowledge_Network_Theory_as_Applied_to_Cultural_Exchange

2Economics of Global Trade And Finance