The ASEAN economies have achieved consistently high economic growth rates over the past decide and a half . This has been made possible by prudent macroeconomic policies, relatively open and trade investment regimes, and access to developed country export markets. This period has seen a shift in the structure of the ASEAN economics as both services and manufactured have grown significantly, both as a source of national output and also of employment. This shift in economic structured is also reflected in the composition of ASEAN exports. In 1975, manufactured goods made up less than 18% of ASEAN exports. But by 1991. the share of manufactured products was already more than 63% of the region’s total exports.
It is important to consider how the manufacturing sector in ASEAN will be affected by the implementation of the CEPT. In this section of the Reader, we take a look at several of these important industries. In terms of number of tariff lines that ASEAN Member Countries have included in the normal and fast track programs of the CEPT, about 43% Eric in chemicals. electronics. machinery and textiles. Some idea of the extent of the commitment to expose these sectors to intra-regional competition can be (gleaned from the tariff reduction schedule contemplated. The average tariff rates in 1993 was about 13% for electronics and 15% for textiles. Under the CEPT, these average rates will fall within 0-5%, by 2008. Although agriculture is less important to the economics of the ASEAN Member Countries than fifteen years .ago, it remains an important source of export revenues and employment. We provide a brief background on these industries and examine the tariff reduction schedule in store for each of them.
In 1980, the share of agricultural value added was about a fourth of total output in the ASEAN region. But by 1991, agricultural gross value added was less than a sixth of regional output. Even in such populous countries as Indonesia and the Philippines, the share of agriculture in GNP was just a little over a fifth. The declining role of agriculture was also more noticeable in the case of Indonesia. Malaysia and Thailand.
However, agriculture continues to play a significant role in the exports of the ASEAN region. In some important agricultural commodities, the ASEAN countries are major exporters to the world market. Notable
examples are palm oil and rubber for Malaysia, coconut oil for the Philippines and cereals for Thailand. Total agricultural exports in 1991 of ASEAN amounted to about $ 25.7 billion (see Table 6). For Thailand, the share of agricultural exports is as much as a third of total exports. For the region as a whole, this share was a little over a fifth of total exports in 1991.
Currently, there are about 4,180 tariff lines classified as agricultural (belonging to Harmonic System Chapters 1-24 included in the normal and fast tracks of the CEPT. Figure 3 shows the tariff reduction schedule of those agricultural products included in the CEPT for each country. Average agricultural tariff rates are scheduled to fall from their 1 994 average of about 17.18%, to 3..39% by the year 2008.
However, even more dramatic chancres are in store for the agricultural sector in ASEAN. The CEPT Agreement of 1994 explicitly excluded unprocessed agricultural products from the CEPT. However, the breakthrough achieved by the UR GATT agreement in including agriculture under GATT discipline has made it necessary for ASEAN to take a second look at this issue. As a result, the 26th ASEAN Economic Ministers’ Meeting (AEM) agreed to include immediately some unprocessed agricultural products in the CEPT while deferring consideration of other products. There is a consensus now in ASEAN that it will have to move forward on the issue of the inclusion of the entire agricultural sector in the CEPT scheme. While intra-regional trade in agricultural products is quite small now (a little over 10% in 1991) but AFTA the recent AEM decision is bound to lead to greater specialization and intra-regional trade. In the long run, this will increase efficiency in agricultural production in the ASEAN region.
Excluding the Eastern European market, the world electronics market is estimated to be a little over $ 700 billion in size as of 1993 (on the basis of 1991 prices). The US, Western Europe. and Japan together accounted for 78.7% of world production in the year 1993. The share of ASEAN Member Countries was 5.6%. Singapore leads the region in production, accounting for 42.0% of total ASEAN production in 1993. It is followed by Malaysia, Thailand, the Philippines and Indonesia with 29.4%, 17.3%, 6.3% and 5.0% respectively.
ASEAN Member Countries mainly sell their products to countries outside the region. The US accounts for 24 percent, while Western Europe and Japan account for 14 percent each. Only about 21% of the electronics products is traded among the ASEAN Member Countries (see Table 7). Singapore leads ASEAN Member Countries in exports with more than half of the total ASEAN exports. Following Singapore are Malaysia and Thailand with 26.7% and 12.3% respectively:. The remaining 10% is accounted for by the Philippines and Indonesia.
Based on 1991 prices, industrial electronics accounts for 43% of ASEAN’s electronics industry, while electronics components and parts including semiconductors make up 36%. and consumer electronics The importance of the electronics industry is mainly seen in its share of the total manufacturing exports for all ASEAN Member Countries. Thirty nine percent of the total manufacturing exports of the ASEAN Member Countries in 1991 ,was made up of electronic products. In fact, for Malaysia and Singapore the share of the electronics industry in their total manufacturing exports was almost 50%. Electronics is also the largest manufactured export of Thailand and the Philippines.
In the case, of the electronics industry in ASEAN, by the year 2000, all ASEAN Member Countries will have already reduced the CEPT tariff down to less than 10%, except for Thailand whose CEPT tariff will still be slightly above 10%.
If the trend in the electronics market is an indicator, the the tariff reduction will further enhance the growth of the electronics industry in the region. As a start, the reduction will attract more multinational firms to invest in the region. The development of electronics industry in components and parts sub-sector indicates that more multinational firms have used one or two of ASEAN Member Countries as the basis of this industry to supply other Southeast Asian countries. This tendency can in turn promote not only foreign direct investment but also intra -regional trade. In the long run, these lower tariff rates will enhance the competitiveness of ASEAN’s electronics industry. It is likely to attract more investors to the electronics industry. In the CEPT will help prepare ASEAN Member Countries for a more competitive global economy.
Total ASEAN trade machineries with the world in 1991 amounted to nearly US$ 36 billion while intra-ASEAN trade for the same period amounted to US$ 3.9 billion, comprising about 11% of its total trade with the world in 1991 (see Table 8). ASEAN’s trade in machineries has Grown steadily from 22.25% of total trade in 1976 to 43.4% in 1992. Intra-ASEAN as well as trade with the world in machineries is largely dominated by Sincrapore. In 1991, Sin(yapore accounted for 57% of ASEAN’s total exports to the world.
ASEAN, however, continues to be a net imiporter of machineries, with machineries export amounting, to barely 25% of its total trade in machineries in 1991. In 1992, the imports of machineries of all ASEAN countries comprised more than 40% of total imports, with the exception of the Philippines. Malaysia had the hihghest imports of machineries at 54.9%, reflecting its growing industrialization, while the Philippines had the lowest imports of machineries at 28.6%.
Singapore’s average tariff rates on machineries are virtually zero, even before the implementation of the CEPT (see Figure 5). The implementation of CEPT will also reduce Brunei’s average tariff rates on machinery’s to zero by 2002. Although the Philippines starts out with one of the highest average tariff rates on machineries at 11%, it has adopted a rapid rate of tariff reduction so that by the year 2008, the Philippines’ average tariff rates on machineries will be 1%. By the year 2008, Malaysia’s average tariff rate on machineries will be 2% while Indonesia and Thailand will have average tariffs of 4 %.
The textile industry has been one of the most dynamic and important industries in ASEAN, recording high growth rates since the 1970s. It has also been one of ASEAN’s largest export-oriented industries. Trade in textiles for ASEAN increased to more than US$10.4 billion in 1991, of which more than US$1.9 billion consisted of trade to ASEAN countries (see Table 9). The share of textiles in world trade and intra-ASEAN trade had increased for ASEAN as a whole since 1986, to 2.8% and 4.3c7c respectively. Indonesia’s share increased from 0. 1% in 1982 to 2.4% in 1992. The market share of ASEAN countries for garments is even larger, with Thailand and Indonesia being significant exporters, each 2.9% and 2.4% of the world market respectively in 1992.
In AFTA, Textile and Articles (HS Codes 50 to 63) would be subjected to tariff reductions to 0-5% by 2008. Tariffs of Thailand and Indonesia will be reduced from tariff rates as high as 24.12% and 21.15% in 1993 to a mere 5.16% and 4.9% respectively in 2003 (see Figure 6). In addition, measures are currently undertaken to eliminate non-tariff barriers and harmonise tariff nomenclatures, customs procedures and valuation. These comprehensive measures would ensure the effective implementation of AFTA.
The increased competition accorded from the opening up of markets within ASEAN would ensure increased efficiency, greater productivity and lower prices in final and intermediate textile goods. The tariff reduction program under the CEPT may increase the scope for specialization in the region and enhance intra-industry linkages in ASEAN textiles. Such intra- industry trade is accentuated by the nature of manufacturing industries like textiles where scale economies can be reaped, products may come in different forms, and the demand for veriety is increased from the improved living standards of ASEAN consumers. Moreover, this would provide the incentives for ASEAN textile industries to be Sufficiently flexible to restructure and move upstream into higher value added textile industries like fabric, yarn, marketing, design, fashion/brand etc. The need for ASEAN to remain at the forefront of development and competitiveness in its textile industry is imperative given the potential increase in international competition in textiles from emerging economies like China and India, and the uncertainties in developments with respect to the phasing out of the Multi-Fibre Agreement (MFA) under the Uruguay Round.
The implementation of AFTA will make the ASEAN region more competitive. The increased rationalisation of’ production processes across ASEAN economics would ensure (greater trade between firms and a more efficient international division of labour. Firms can specialise in different stages of production to reap scale economics, it the same time sourcing cheaper intermediate goods from other ASEAN countries. The increased attractiveness of ASEAN for Foreign Direct Investment, implied by the creation of AFTA, would further enhance this process, besides promoting technology transfer as foreign multinationals relocate various stages of their production processes across ASEAN countries. The creation of inter-firm linkages would exploit the differences in comparative advantage among ASEAN economies.