2011 Jan 03
January 3, 2011

Moving beyond Afta

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Asean members this year will attempt to build on free trade gains, but investment liberalisation will be a challenge

Another challenging year has begun for Asean nations looking to affirm their cooperation and integrity in a concerted effort to speed up talks on further free trade pacts covering investment and services after the six original members eliminated duties on most products including rice under the Afta agreement from Jan 1, 2010.

Asean members have in fact already signed the Asean Comprehensive Investment Agreement (ACIA) and the Asean Framework Agreement on Services (AFAS) and originally planned to bring them into effect last year.

But the two pacts have yet to come into actual enforcement as members remain at odds over sensitive lists for trade liberalisation.

The ACIA, an improvement over two existing pacts – the Asean Investment Area and the Asean Investment Guarantee – is designed to make Asean an attractive investment destination.

It covers the liberalisation, facilitation, protection and promotion aspects of investment mainly in the manufacturing, agriculture, fisheries, forestry, and mining and quarrying sectors along with incidental services.

Meanwhile, the AFAS is aimed at achieving a free flow of services with flexibility, in accordance with designated priority sectors – information and communications technology, air travel, healthcare and tourism, and logistics.

Asean members originally agreed to raise their share ownership in these priority sectors – to 70% last year for the first three sectors from the current 51%; and to 51% in 2013 for logistics from 49% now.

So far, Brunei, Cambodia, Laos, Malaysia, Burma, the Philippines and Singapore have ratified the ACIA, but Indonesia and Thailand continue to baulk, as they remain concerned about reserving businesses for investment, particularly in agriculture-related industries.

Srirat Rastapana, director-general of the Trade Negotiations Department, said Thailand is ready to ratify the ACIA once Indonesia has finished its reservation list.

She said the bloc desperately needed to work harder to make all agreements conform to the blueprint of the Asean Economic Community (AEC), which takes effect in 2015.

More importantly, Asean members must proceed with plans to find a proper direction for development of customs procedures, tariff systems and technology under the Asean Single Window scheme to facilitate trade, as well as a green lane to facilitate transport in order to reduce production costs.

A self-certification initiative in which exporters are allowed to use commercial invoices to self-declare the country of origin for their goods instead of the previous preferential certificate of origin should be promoted to allow tariff savings with less hassle.

In 2011, Thailand should also step up bilateral talks to cover more services and investment with dialogue partners including Australia, New Zealand, India, Peru and Chile, said Ms Srirat.

Thailand has signed free trade pacts with Australia (2004), New Zealand (2005), Japan (2007), Peru (early harvest, 2009) and India (82 items, 2003).

Thailand, as part of Asean, has also implemented similar trade deals with China (2004, as part of the early harvest scheme for the Asean-China FTA), Japan (2008), South Korea (2009), India (2009) and Australia-New Zealand (2010).

Talks with Chile and other Latin American countries are also pending.

Bilateral trade talks between Thailand and the EU are also in the pipeline after Asean-EU free trade negotiations have been halted for a year now.

For Thailand’s talks with the EU, the Abhisit Vejjajiva government has already agreed in principle to a negotiation framework covering 80-90% of industry, services and investment.

It has also agreed to include alcoholic drinks despite increasing attacks from activists who fear an influx of European alcoholic drinks after tariffs fall.

The government expects to seek parliamentary approval early this year and complete the talks within two years.

A long-anticipated pact among members of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (Bimstec) could be implemented this year if members can soon submit their lists of products they want subject to tariff reductions.

The seven Bimstec members – India, Bangladesh, Sri Lanka, Nepal, Bhutan, Burma and Thailand – finalised the framework and terms for reducing and waiving tariffs in 2009. However, many countries have yet to come up with their lists, making implementation of the agreement any time soon doubtful.

More than 5,000 items stand to be subject to tariff cuts.

Ms Srirat said 2011 would be a milestone in world trade with the possible conclusion of the stalled Doha Round of negotiations, raising hopes the US and Europe will eventually remove farm subsidies and allow countries such as Thailand to enjoy higher crop prices.

“The Doha Round and FTA talks will be critical for the Thai economy in the year to come, as Thailand remains heavily reliant on the global economy in terms of both exports and imports,” she said.

“The government itself in 2011 will need to prepare itself well with appropriate strategies to cope with regional and global liberalisation.”

Somkiat Anurat, vice-chairman of the Thai Chamber of Commerce, said private Thai companies have yet to take full advantage of trade liberalisation within Asean.

Worse, most local small and medium-sized enterprises have not yet been alerted and are not ready for competition under the AEC.

“The uptake of Afta benefits among Thai companies is relatively low,” said Mr Somkiat. “A key of stumbling block is seems to be inconvenient goods transport. The Asean Single Window therefore must be implemented quickly to streamline customs clearance.”