.   At the Fourth ASEAN Summit in Singapore in January 1992, the ASEAN heads of government formally agreed to establish an ASEAN Free Trade Area (AFTA) and signed the Singapore Declaration and the Framework Agreement on Enhancing ASEAN Economic Cooperation. The ASEAN Economic Ministers signed the Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for AFTA. This scheme is the main mechanism for the realization of AFTA.

.   The ultimate objective of AFTA is to increase ASEAN's competitive edge as a production base geared for world market. Through the elimination of intra-regional tariffs and non-tariff barriers, ASEAN's manufacturing sectors will become more efficient and competitive.

.   And with the larger size of the market, investors can enjoy economies of scales in production. Foreign direct investments will be attracted into the region. This will in turn stimulated growth of supporting industries in the region for many foreign direct investments.

Members of AFTA

.   There are six original members of AFTA i.e Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand.

.   Now AFTA has 10 members including 4 new members i.e. Vietnam (joined in 1995) Laos and Myanmar (joined in 1997) and Cambodia (joined in 1999)

.   According to the CEPT Agreement, the countries of ASEAN would reduce intra-regional tariffs on all manufactured items including capital goods and processed agricultural products and remove non-tariff barriers over a 15-year period commencing 1 January 1993.

.   However, in view of the economic challenges, the AEM Meeting on 22-23 September 1994 in Chiangmai, Thailand agreed to shorten the time frame for the realisation of the AFTA from 15 to 10 years, finishing by 1 January 2003 instead of 2008, and to include unprocessed agricultural products into the CEPT scheme.

Manufactured and Processed Agricultural Products

.   There are two programs of tariff reduction under the CEPT Scheme: the Fast Track Program and the Normal Track Program.

.   The Fast Track Program

a. Tariff above 20 % will be reduced to 0-5 % within 7 years (by 1 January 2000)

b. Tariffs at 20 % and below will be reduced to 0-5 % within 5 years (by 1 January 1998)

The Fast Track Program covers a set of 15 product groups identified for accelerated tariff reduction by the Fourth ASEAN Summit. They are:

.   The Normal Track Program

a. Tariff above 20 % will be reduced in two stages:

- first, to 20 % within 5 years (by 1 January 1998); and

- subsequently, from 20% to 0-5 % in 5 years (by 1 January 2003)

b. Tariffs of 20 % and below will be reduced to 0-5 % within 7 years (by 1 January 2000)

.   Sensitive products not ready to be included in the CEPT may be excluded temporarily. But they are required to be transferred into the Inclusion List 20 % annually, starting from 1 January 1996 to 1 January 2000. By 1 January 2003 all these products in the Temporary Exclusion List (TEL) should be in the CEPT scheme, ie., tariff at 0-5 % , QRs and NTBs removed.

.   The 1992 CEPT Agreement had excluded unprocessed agricultural products from the CEPT Scheme. However, the 26th ASEAN Economic Ministers (AEM) Meeting in September 1994 decided to phase in unprocessed agricultural products into the CEPT Scheme.

.   Unprocessed agricultural products have been categorized into three major lists: (a) Immediate Inclusion List; (b) Temporary Exclusion List (TEL) and (c) Sensitive List

.   Unprocessed agricultural products in the Immediate Inclusion List were included in the CEPT Scheme on 1 January 1996. These products have already began the process of tariff reduction, so that by 2003, the tariffs on these products will be within the 0-5 % range. Member Countries are also required to eliminated quantitative restrictions (Qrs) and other non-tariff barriers (NTBs) on these products.

.   Unprocessed agricultural products in the Temporary Exclusion List can be kept out of the CEPT Scheme only for a limited time. By 1 January 1997, each Member Country is required to phase in, at equal installments, those unprocessed agricultural products in their TEL. By 1 January 2003, all these products in the TEL should be in the CEPT Scheme, i.e., tariffs at 0-5 % Qrs and NTBs removed.

.   However, unprocessed agricultural products in the Sensitive List will be treated differently. A special arrangement with features that need not be the same as the CEPT will be created for these products. However, the trade liberalization features of the special arrangement will have to be more preferential than the commitments made by Member Countries under the Agreement on Agriculture of the World Trade Organization (WTO).

.   But even for these sensitive UAPs, Member Countries have agreed that there is a deadline by which they have to be phased into the CEPT Scheme. The Ninth AFTA Council that met in Sentosa, Singapore in April 1996 agreed to set a deadline of 1 January 2010 when all products will have to be included into the CEPT Scheme. Hence the special arrangement for products in the Sensitive List represents a transitional and not a permanent special treatment of unprocessed agricultural products.

.   There are also General Exceptions. General Exceptions are those products excluded for the protection of national security, the protection of human, animal or plant life and health, and the protection of articles of artistic, historic and archaeological value.

.   The Fifth ASEAN Summit held in Bangkok, Thailand in December 1995 reaffirmed the commitments of removing all quantitative restrictions and non-tariff barriers. The Fifth ASEAN Summit further mandated greater transparency in standards and conformance, alignment of product standards with international standards and establishment of mutual recognition arrangements on a bilateral or plurilateral basis to facilitate greater intraregional trade.

.   ASEAN Member Countries were able to make an important headway towards the removal of NTBs in the region with the removal of all customs surcharges affecting CEPT products at the end of 1996.

.   Subsequently, work has been focussed on the elimination of technical barriers to trade (TBT) and the harmonisation of Sanitary and Phytosanitary (SPS) Measures.

.   To disseminate information on standards and conformity assessment in ASEAN, the ASEAN Consultative Committee on Standards and Quality (ACCSQ) has published seven volumes of the ASEAN Standards and Quality Bulletin and two issues of the Directory of the ASEAN Contact Points for Standards and Technical Regulations. An ASEAN Homepage on Standards and Conformity Assessment has also been established and can be found in the ASEAN Secretariat Homepage (URL address: http://www.aseansec.org). It contains relevant information on standards and conformity assessment in ASEAN, including electronic versions of the ACCSQ Bulletin, and is also linked to the home pages of the various standards-setting bodies in ASEAN.

.   To provide focus to the harmonisation of product standards, 20 product groups that are widely traded in ASEAN have been selected for standards harmonisation. These 20 product groups, which include major consumer durables, appear in Table below.

.   The harmonisation of standards for these product groups is carried out through alignment of national standards with relevant international standards such as those set by the International Standards Organisation (ISO), International Electrotechnical Commission (IEC) and International Telecommunications Union (ITU). The harmonisation will be completed by the year 2000.

.   The ASEAN Framework Agreement on Mutual Recognition Arrangements was signed on 16 December 1998. The Framework Agreement is intended to set out the general principles governing the development of sectoral or product-based MRAs among ASEAN Countries.

.   ASEAN has also undertaken activities to harmonise phytosanitary measures in the region as part of the effort to expand intra-ASEAN trade in food and agricultural products. The principles for harmonisation of Phytosanitary Measures in ASEAN have been developed and adopted, which include, among others, facilitation of intra-ASEAN trade, consistency with international standards, transparency and technical justification of Phytosanitary Measures.

.   Fourteen agricultural products have also been prioritised for harmonisation. These include rice, mango, coconuts, ginger, dendrobium, groundnuts, round cabbage, black pepper, potato, onions, oranges, coffee, pineapples and banana.

.   ASEAN is also harmonising the Maximum Residual Limits (MRLs) of pesticides in vegetables so as to enhance regional trade in vegetables. The major progress so far has been the establishment of harmonised MRLs for ten pesticide-vegetable combinations. In addition, the harmonisation of MRLs now has been expanded to include all vegetables as well as an additional 10 pesticides, which are used in ASEAN namely: cabaryl, carbofuran, methomyl, malathion, diazinon, prothiophos, triazophos, parathion-methyl, cypermethrin and endosulfan.

.   To facilitate intra-ASEAN trade in animal vaccines, a complete set of Manuals for Animal Vaccines have been adopted and published covering accreditation of laboratories testing animal vaccines, good maunfacturing practice, etc.

.   To qualify for the concessions, the importer has to make sure that:

a. The same product is in the Inclusion List of the exporting country;

b. The tariff rate in the exporting country for the same product is at or below 20 % level. However, if the tariff in the exporting country is above 20 % the concessions can only be given when the CEPT tariff rate of the importing country is also above 20 % , regardless of whether there is a tariff reduction in that particular year or not;

c. The imported product must have a CEPT Certificate of Origin (Form D) to prove that the product has at least 40 % ASEAN content.

.   Because of the financial and economic crisis since July 1997 and in order to regain business contidence, enhance economic recovery and promote growth, the ASEAN Leaders are committed to the realisation of the ASEAN Free Trade Area (AFTA). In addition, the Leaders agreed on special incentives and privileges to attract foreign direct investment into the region. To enhance further economic integration of the region, the Leaders also agreed to further liberalise trade in services.

.   To accelerate the ASEAN Free Trade Area (AFTA), the Leaders agreed that the six original signatories to the Agreement on the Common Effective Proferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area (AFTA) - Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand would advance the implementation of AFTA by one year from 2003 to 2002. They also agreed to achieve a minimum of 90 % of their total tariff lines with tariffs of 0-5 % by the year 2000, which would account for 90 % of intra-ASEAN trade.

.   Individually, each country would commit to achieve a minimum of 85% of the Inclusion List with tariffs of 0-5 % by the year 2000. Thereafter, this would be increased to a minimum of 90 % of the Inclusion list in the 0-5 % tariff range by the year 2001. By 2002, 100% of items in the Inclusion List would have tariffs of 0-5 % with some flexibility.

.   Member Countries also agreed to deepen, as soon as possible, tariff reduction to 0% and accelerate the transfer of products, which are currently not included in the tariff reduction scheme, into the Inclusion List.

.   The new members of ASEAN shall maximise their tariff lines between 0-5 % by 2003 for Vietnam and 2005 for Laos and Myanmar; and expand the number of tariff lines in the 0 % category by 2006 for Vietnam and by 2008 for Laos and Myanmar.

.   The number of tariff lines included in the CEPT Scheme has expanded with the membership of Lao PDR and Myanmar in 1997. The 1998 CEPT Package contains a total of 55,471 tariff lines comprising 45,942 tariff lines (82.8 % of total tariff lines) in the Inclusion List, 8,353 tariff lines (15.1 % of total tariff lines) in the Temporary Exclusion List, 340 tariff lines (0.6% of total tariff lines) in the Sensitive List and 836 tariff lines (1.5 % of total tariff lines) in the General Exception List. The detailed breakdown is shown in Table below

Notes: Valid as of 6 October 1998; n.a - not available

Source: ASEAN Secretariat.

.   Lao PDR has a total of 3,551 tariff lines. Out of this, 533 tariff lines (15 % of total tariff lines) are in the Inclusion List and the CEPT (as well as MFN) rates for all these lines are at 5%. About 45.4 % of these tariff lines are from the Machinery and Electrical Appliances Sectors (i.e. chapter 84-85) while 19.14 % of tariff lines are from the Optical, Precision and Musical Insruments sectors (i.e. chapter 90-92). Lao PDR maintains 2,820 tariff lines in the Temporary Exclusion List, which constitutes 79.4% of her tariff lines. The remaining 198 tariff lines are in the Sensitive List (i.e. 96) and General Exception List (i.e. 102)

.   Myanmar has a total of 5,472 tariff lines of which 2,356 tariff lines (43 %) are in the Inclusion List. More than 71 % of these tariff lines have CEPT rates between (0-5) % 2,987 tariff lines or almost 55% of total tariff lines are in the Temporary Exclusion List. The remaining 129 tariff lines are in the Sensitive List (i.e. 21) and General Exception List (i.e. 108). From the Inclusion List, almost 20 % of the tariff lines are in the Base Metal and Metal Article sectors (i.e. chapters 72-83). The average tariff rates for Myanmar's Inclusion List will be reduced from 4.47 % in 1998 to 2.77 % in the year 2008.

.   There are two important categories of Temporary Exclusion Lists in the CEPT. One category is the manufactured and processed agricultural products and the other is the unprocessed agricultural products¹. Manufactured and processed agricultural products are to be included in five equal installments beginning 1 January 1996. Thus the 1998 CEPT Package includes the third installment for manufactured and processed agricultural products. Unprocessed Agricultural Products (UAPs) would be phased-in in seven equal installments beginning 1997. The first package was included in the 1997 CEPT Package. The 1998 CEPT Package therefore includes the second installment of unprocessed agricultural products.

.   The phasing in of TELs for the new ASEAN members has a different time frame. For Vietnam, the phase-in program will start on 1 January 1999. For Laos and Myanmar, the programme will begin on 1 January 2001. The number of products transferred from the TEL into the Inclusion List is shown in Table below.

n.a: not applicable

Source: ASEAN Secretariat

.   The average regional CEPT rate for products in the Inclusion List in 1998 has fallen to 5.05 % from 12.76 % in 1993. As of 1998, no product in the Inclusion List of the first six ASEAN Member Countries can have CEPT tariff rates higher than 20 %. The average CEPT rate for the region is scheduled to fall to 3.74 % by the year 2000 and then to 2.63 % by the year 2003.

Source: ASEAN Secretariat

.   Based on preliminary submissions of Member Countries, the 1999 CEPT Package would consist of 47,160 tariff lines (84.8 % of total tariff lines) in the Inclusion List. These additional tariff lines would come from products being transferred from the Temporary Exclusion List into the Inclusion List. Given the acceleration initiatives by Member Countries, the actual 1999 Inclusion List would exceed this number. Member Countries are also required to issue their 1999 CEPT legal enactments by 1 January 1999 for those products that will be transferred into the Inclusion List.