The Association of Southeast Asian Nations has established a trading bloc known as the ASEAN Free Trade Area (AFTA). All ASEAN nations benefit from local commerce and industry, and economic integration with regional and global partners is made easier thanks to the FTA. It is one of the biggest and most significant FTAs in the world. It was the driving force behind some of the biggest international conferences and groups in the world, including the East Asia Summit, the Regional Comprehensive Economic Partnership, and the Asia-Pacific Economic Cooperation. On January 28, 1992, in Singapore, the AFTA agreement was signed.
Membership
Six countries made up ASEAN at the time the AFTA agreement was first signed: Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Laos and Myanmar joined in 1997, followed by Cambodia in 1999 and Vietnam in 1995. The 10 ASEAN nations are now a part of AFTA. The AFTA agreement had to be signed by all four of the latecomers for them to join ASEAN, but they were allowed more time to fulfill the AFTA’s tariff reduction obligations. Papua New Guinea, East Timor, China, South Korea, Japan, India, Russia, Australia, and New Zealand are all observer nations.
Goals
Through the removal of tariffs and non-tariff barriers within ASEAN, AFTA seeks to: Increase ASEAN’s competitive edge as a production base in the global market; and increase ASEAN’s foreign direct investment. The Common Effective Preferential Tariff system (CEPT) which established a phased schedule in 1992, is the main tool for attaining such aims. The CEPT aims to strengthen the region’s competitive edge as a production base geared for the global market.
History
The ASEAN Declaration was signed by the foreign ministers of Indonesia, Malaysia, the Philippines, Singapore, and Thailand on August 8, 1967, officially establishing the Association of Southeast Asian Nations (ASEAN). The ASEAN Declaration proclaimed the formation of an association for regional cooperation among Southeast Asian nations to foster cooperation in a variety of areas, including the economy, social issues, culture, technology, and education. Additionally, it seeks to advance regional peace and security by upholding the UN Charter’s tenets of fairness, the rule of law, and justice for all.
The Common Effective Preferential Tariff (CEPT) scheme
AFTA does not impose a common external tax on imported goods, in contrast to the EU. Depending on their national schedules, each ASEAN member may levy duties on commodities arriving from outside ASEAN. However, ASEAN nations must impose a 0–5 percent levy on items with an ASEAN origin. The Common Effective Preferential Tariff (CEPT) system is used in this. In three situations—Temporary exclusions, Sensitive agricultural items, and General exceptions—ASEAN countries can choose to exclude products from the CEPT. Products that are subject to temporary exclusions are those for which tariffs are currently higher than 0-5 percent but will eventually be decreased. Commodities like rice are examples of sensitive agricultural products. General exclusions cover goods that an ASEAN member deems required to defend national security, public morals, human, animal, or plant life and health, as well as the preservation of works of art, historic objects, or archaeological significance. By 2010 for the original signatories and 2015 for the CMLV countries, ASEAN members agreed to implement zero tariff rates on nearly all imports. The CMLV countries—Cambodia, Laos, Myanmar, and Vietnam—are the group’s more recent members.
Rule of origin
Only items with ASEAN origins are subject to the CEPT. The basic norm is that at least 40% of the FOB value of the goods must be made locally in ASEAN countries. When calculating the local ASEAN content, the value of contributions from different ASEAN nations can be added up to reach the required 40 percent. The following equation is used: 100 percent FOB value x (Raw material cost + Direct labor cost + Direct overhead cost + Profit + Inland transport cost). A “Form D” certification from the exporter’s national government attesting that the good has complied with the 40 percent standard is required. To be eligible for the CEPT rate, Form D must be submitted to the customs authorities of the importing government. There have occasionally been issues with the claim’s supporting evidence as well as how ASEAN country customs administrations can check Form D submissions. These issues occur because the Form D regulations are interpreted and applied inconsistently by each ASEAN country’s customs authority.
Administration
The national customs and trade administrations in each ASEAN member are in charge of the AFTA administration. Although it has the power to oversee and guarantee that AFTA measures are being followed, the ASEAN Secretariat is not able to compel compliance. As a result, national ASEAN authorities have made erroneous decisions. The ASEAN Charter aims to improve the ASEAN Secretariat’s capacity to guarantee the uniform application of AFTA provisions. Additionally, national authorities from ASEAN nations have historically been reticent to delegate authority or share sovereignty. To assess whether AFTA provisions like the rule of origin are being adhered to, ASEAN national authorities rely on the assessment and analysis of other ASEAN national authorities. Through the implementation of the ASEAN Single Window initiative, ASEAN has also made an effort to enhance customs coordination. Importers would be able to submit all relevant information to the transaction online once through the ASEAN Single Window. All other ASEAN national customs administrations would thereafter be informed of this information.
