Tariff cuts mark milestone for Asean today

Brunei, Indonesia, the Philippines, Malaysia, Singapore and Thailand keep pledge to cut tariffs to no more than 5%

In a move that will help transform the region’s economic landscape, Asean’s free trade area (Afta) marks a major milestone today as key members make good on their pledges to reduce tariffs to no more than 5 per cent.

Secretary-General Rodolfo Severino said Brunei, Indonesia, the Philippines, Malaysia, Singapore and Thailand had all met the deadline to reduce tariffs on a range of manufactured and agricultural products.

“This is a symbol of Asean’s resolve to integrate the region’s economies,” he told The Straits Times yesterday from the Jakarta-based Asean Secretariat.

Afta’s main aim, when it was launched in 1993, was to bring intra-regional tariffs down to between zero and 5 per cent. The original deadline for this to be achieved was 2008.

That deadline was then advanced to 2003 and again moved forward to 2002 as a result of the regional economic downturn and as part of a bid to help develop Asean’s attractiveness and competitiveness.

The current average tariff on goods traded among member countries is estimated at about 3.5 per cent – down from 12.7 per cent when Afta first got off the ground.

Cambodia, Laos, Myanmar and Vietnam – which are Asean’s newer members – were given an extended deadline of 2006 to reduce their tariffs because they are less developed and have different economic circumstances.

The grouping has given leeway to some industries – the automotive industry in Malaysia for example – to temporarily continue to enjoy some measure of tariff protection.

But Mr Severino stressed that the desire of the six Asean members in 1993 to go ahead with a plan to trim tariffs was the driving force behind the move to establish the free trade area.

The six account for more than 90 per cent of intra-Asean’s trade.

He said that contrary to expectations, Asean was able to move faster on binding diverse economies given the challenges it was facing from the financial crisis and from rising competition from other parts of the world.

Since 1997, duties have, in fact, gradually come down across the region in line with the grouping’s goal of eliminating them altogether.

Latest available figures show that intra-Asean trade accounts for about 20 per cent of the region’s annual trade of more than US$700 billion (S$1,300 billion).

Mr Severino noted that the tariff cuts would give consumers in South-east Asia a broader range of products to choose from at competitive prices.

But, he made it clear that Asean had to go beyond cutting tariffs to achieve economic integration.

This meant moving to also remove non-tariff barriers, developing region-wide transportation and telecommunication infrastructure, setting common product standards and increasing financial linkages among member states.

The grouping is also exploring setting up a free trade area with China, possibly within a decade.

In the interview, Mr Severino downplayed talk of a common currency in the region, saying that the “issue of sovereignty” was a major obstacle to such a development.

But he said that some Asean countries were already taking steps in that direction through bilateral currency swop arrangements.

“In Asean, we have to be pragmatic. Things have to be done incrementally for political conditions will not let us speed things up,” he said.