Background and objectives Of Afta

Background Of Afta 

AFTA stands for ASEAN Free Trade Area, which involves the removal of obstacles to freer trade among member states. This includes the abolition of high tariffs or taxes on traded goods and the scrapping of quantitative restrictions and other non-tariff barriers that limit the entry of imports. There are ten (10) ASEAN member countries. The six original members are Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. The other members are Vietnam (1995), Laos and Myanmar (1997), and Cambodia (1999). 

At the Fourth ASEAN Summit in January 1992, the ASEAN Heads of Government agreed to establish an ASEAN Free Trade Area (AFTA) by the year 2008 to open up their economies in the era of globalization. During the ASEAN Economic Ministers (AEM) Meeting in September 1994, the target date was advanced to 2003. A free trade area would allow the companies within the ASEAN region to take advantage of the economies of scale. The main implementing mechanism of AFTA is the Common Effective Preferential Tariff (CEPT) Scheme. 

The objectives of AFTA 

The AFTA program was initiated in 1992 to create an integrated market among ASEAN’s close to half a billion people making the ASEAN economies more efficient and competitive, and attract investments into the region. The ultimate objective of AFTA is to increase ASEAN's competitive edge as a production base geared for the world market. A critical step in this direction is the liberalization of trade in the region through the elimination of intra-regional tariffs and non-tariff barriers. This will have the effect of making ASEAN's manufacturing sectors more efficient and competitive in the global market. At the same time, consumers will source goods from the more efficient producers in ASEAN thus expanding intra-ASEAN trade. As the cost competitiveness of manufacturing industries in ASEAN is enhanced and with the larger size of the market, investors can enjoy economies of scale in production. In this manner, ASEAN hopes to attract more direct foreign investments into the region. This will, in turn, stimulate the growth of support industries in the region for many direct foreign investments. 

The Common Effective Preferential Tariff Scheme, or CEPT, is a cooperative arrangement among ASEAN Member States that will reduce intra-regional tariffs and remove non-tariff barriers over a 10-year period commencing January 1, 1993. The goal of the Scheme is to reduce tariffs on all manufactured goods to 0-5% by the year 2003. This will benefit Philippine exporters to ASEAN. The lower CEPT rates make the country’s products cheaper in these markets, thus stimulating greater demand. The increase in exports to ASEAN would depend on the price elasticity of demand. 

The CEPT Scheme is the main instrument for making ASEAN a free trade area in ten (10) years. This means that ASEAN Member States shall have common effective tariffs among themselves in AFTA but the level of tariffs vis-à-vis non-ASEAN countries shall continue to be determined individually.