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.
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 and AFTA is almost completely realised among the ASEAN-6.
On average, today ASEAN 6 has 99.20% of tariff lines in the Inclusion List at 0%. Only 0.35% or less than 1% of the Tariff Lines in the Inclusion list has import duties.
For Cambodia, Laos, Myanmar and Viet Nam, collectively referred to as CLMV, 68.88% of the Tariff Lines in the Inclusion List are already at 0%.
On the average, ASEAN member states have 87.81% Tariff Lines at 0% according to the ATIGA Tariff Schedule of 2013.
Table 1: Number of Tariff Lines at 0% in the ATIGA Tariff Schedule of 2013
Malaysia has eliminated duties on 98.74% of its tariff lines in our ATIGA Tariff Schedules for 2013. We now only have 73 tariff lines or less than 1% (0.59%) that have duties of 5% to 20% covering tropical fruits and tobacco and highly sensitive products (rice), respectively.
Malaysia has placed 82 Tariff Lines (TLs) which comprise of alcoholic beverages and arms weapons in the General Exclusion List. These products are not subject to import duties reduction or elimination.
Based on the commitments under AFTA, Cambodia, Lao PDR, Myanmar and Viet Nam will be eliminating duties on all products by 2015 with flexibility of 7% of tariff lines up to 2018.
In 2015, ASEAN-6 and CLMV will become a complete free trade area.
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 products will be cheaper and can compete not only within ASEAN Member States but within other countries as well. With larger scale of production and 592 million ASEAN populations as at 2010, it provides broader market access to producers/manufacturers.
In 2010, intra-ASEAN trade had market access of USD519.8 billion, USD598.2 billion in 2011 and USD600.9 billion in 2012. For year 2012, the total intra-ASEAN trade experienced a slight increase of 0.5% compared to 2011. ASEAN is the main market for Malaysia with 26 per cent trade in goods for three consecutive years (2009-2011). While in 2012, Malaysia's total trade with ASEAN increased to 27.3 per cent.
Table 2 : Intra-ASEAN Trades 2010-2012
Due to the reduction in import duties, there is an increase in Foreign Direct Investment (FDI) which has a positive impact on producers/manufacturers and consumers. In 2012, total Intra-ASEAN FDI was USD20 billion compared to USD17.6 billion in 2011, a significant increase of 13.6 per cent.
Table 3 : Flows of Inward Direct Investment to ASEAN (2010 -2012)
Entry into force of ASEAN Trade in Goods Agreement (ATIGA)
ATIGA was signed in Hua Hin on 26 February 2009 during the 14th ASEAN Summit Meeting and came into force of the ASEAN Trade in Goods Agreement (ATIGA) 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.
With the entry into force of this Agreement, Malaysian exporters under the CEPT Scheme for ASEAN Free Trade Area (AFTA) can use:
the ATIGA Form D instead of CEPT Form D for exports to Brunei, the Philippines, Singapore and Thailand effective 17 May 2010; and
for Cambodia, Indonesia, Lao PDR, Myanmar and Viet Nam, the ATIGA Form D can be used effective 1 July 2010.
The ATIGA value-adds to the Common Effective Preferential Tariff ASEAN Free Trade Area (CEPT-AFTA) Agreement of 1992 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-AFTA Agreement of 1992 where it value adds the existing CEPT Agreement 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;
Trade facilitation and related chapters; and
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.
SELF-CERTIFICATION PILOT PROJECT
Self-certification is a system which enables the Certified Exporter (CE) to make out an invoice declaration for the exports of good. The information in the invoice declaration is less than what appears in ATIGA Form D.
A Memorandum of Understanding for the 1st Self Certification Pilot Project involving three participating member states namely Malaysia, Brunei Darussalam and Singapore was signed on 26 August 2010 during the ASEAN Economic Ministers (AEM) Meeting which entered into force from 1 November 2010, while Thailand is the fourth Participating Member State (PMS) and took off effective 28 October 2011.
The main objectives of Self Certification Scheme are:
Facilitating intra-ASEAN trade;
Reduce cost and time of doing business; and
Maximise the efficiency of the government limited resources.
The 26th AFTA Council Meeting held on 27 August 2012 agreed to extend the implementation of the 1st Self-Certification Pilot Project until 31 December 2015. This is to provide more time for other ASEAN Member States to participate in this pilot project.
Currently, Malaysia has appointed 108 Certified Exporter (CE), Brunei Darussalam has 10 CE, Singapore has 41 CE and Thailand has 76 CE. The certified exporters comprise of manufacturers and traders.
The ASEAN-wide implementation of Self-Certification System is targeted to be realised by 2015.
RULES OF ORIGIN
Rules of Origin (ROO) are an integral part of any preferential trading arrangements. ROO sets out the conditions under which goods traded under free trade or preferential trade arrangements are considered "originating". This is to ensure that goods are manufactured or transformed in the exporting country through substantial value-added activities.
ROO is used as a tool for importing countries to ascertain only qualified products are entitled to benefit from the preferential tariff concession committed under the ATIGA. Goods that are merely transhipped or underwent simple processes do not qualify. The preferential import duty rates are then granted when compliance to the specific ROO has been established. As part of the requirements of the ATIGA, imported goods must be accompanied by the Certificate of Origin (COO) Form D issued by a designated authority by the government to support the claim that they are eligible for preferential tariff treatment under the specific FTA.
Types of Rules of Origin
ATIGA has a set of ROOs. It is important that the business community in Malaysia understands the ROOs so as not to be denied preferential tariffs when exporting their products in position to maximize the use of an FTA.
ROO can be divided into percentage criterion a combination of percentage and process criterion.
Wholly Obtained Products
Where a product is wholly obtained or produced in the exporting country it shall be considered as originating.
Examples of wholly obtained products include: forestry products; fruits; flowers; vegetables; trees; seaweed; fungi and live plants; plant products grown and harvested in the Party to FTA; animal life, including mammals; birds; fish; crustaceans; mollusks; reptiles; and living organisms born and raised in the Party to the FTA.
Not Wholly Obtained Products
Where it is not wholly obtained, the product will be considered originating if it is processed and substantially transformed in the exporting country or contains a certain level of Regional Value Content (RVC) or sometimes termed as local content.
In ASEAN the RVC is 40%. Other than RVC, the Change in Tariff Classification (CTC) is also used as a criterion. The CTC can be further divided into Change in Chapter (CC), Change in Tariff Heading (CTH), and Change in Tariff Sub-Heading (CTSH). Generally ASEAN's ROOs are 40% RVC or CTH.
In addition to RVC and CTC, some specific rules may apply for specific products under ATIGA such as for textile and textile products. These activities are clearly spelt out under the Product Specific Rules (PSRs). ATIGA ROOs provides clear definition on how packaging, accessories, spare parts, and tools are treated in the assessment of exemption of import duties and in calculation for determining originating status. The value of accessories, spare parts and tools are to be considered in the calculation as originating or non- originating if it is a standard requirement for the goods.
RULES OF ORIGIN FOR ATIGA-AFTA
LIST OF LINKS
1. Tariff Schedules for ATIGA
2. Product Specific Rules (PSR)
3. Customs Duties (Goods of ASEAN Countries Origin) (ASEAN Harmonised Tariff Nomenclature and ASEAN Trade In Goods Agreement) Order 2012
4. ASEAN Trade in Goods Agreement, Cha-am, Thailand, 26 February 2009