One of the recent paradoxes in the world economy is the surge in the number of regional trade arrangements at the same time that there has been a renewal of faith in multilateralism. Thus while asserting the primacy of the principle of non-discrimination in trade relations, the global community has also given a fresh impetus to regional trading arrangements. As many as 33 regional trading arrangements were notified to GATT in the period between 1990 and 1994.
AFTA and CER
The ASEAN Free Trade Area (AFTA) was announced in January 1992 by the Fourth ASEAN Summit in Singapore. The Australia-New Zealand Closer Economic Cooperation Trading Arrangement (ANZCERTA or CER) came into being in 1983. CER’s predecessor was the New Zealand-Australia Free Trade Agreement of 1964 while the ASEAN Preferential Trading Arrangement (PTA) preceded AFTA. Both arrangements aim at creating a free trade area. In the case of AFTA another objective was to increase ASEAN’s competitive edge as a production base in the world market. In the case of CER the objective was to strengthen the broader relationship between Australia and New Zealand and develop closer economic relations through a mutually beneficial expansion of free trade under conditions of fair competition. While AFTA is expected to be realized by the year 2003, CER has already eliminated all protective tariffs between the Member Countries in 1 July 1990. CER has also moved significantly into other areas such as customs harmonization, anti-dumping and countervailing, services, government procurement and dispute settlement procedures.
While regional trading arrangements like AFTA and CER are a prominent feature of the global economic reality in the post-Uruguay Round era, such arrangements can become “building” rather than “stumbling” blocks on the road to a truly multilateral trading system. Forming cross linkages between regional trading arrangements such as AFTA and CER may be regarded as a positive development.
AFTA-CER linkage may be beneficial to both subregions in various ways. Firstly, while ASEAN and the CER countries have a reasonable volume of trade and investment with each other, there is potential for greater expansion in these. Secondly, ASEAN and the CER countries also share the same perspective on many other economic issues. Both subregions are members of APEC and are committed to full, voluntary cooperation and outward-looking approach.. Thirdly, although some of the cooperation arrangements under the proposed linkage may be dealt with on a bilateral basis, a joint approach economizes on negotiating time (a scarce resource for all the countries concerned).
Trade and Investment Between AFTA and CER
The level of trade flows between ASEAN and the CER countries is quite small (Table 10). Exports of ASEAN to the CER countries in 1994 was only about US$ 5.2 billion whereas total exports of the region last year was nearly US$ 289 billion. Exports to CER represents only about 1.15% of ASEAN’s total exports. Meanwhile ASEAN imports from the CER countries was US$ 7.2 billion in 1994 representing only 2.65% of the region’s total imports of US$ 266 billion. However, trade between the two regional groupings has been growing. This suggests that there could be potential for trade between the two regional groupings either by further trade liberalisation and facilitation.
Table 10
ASEAN TRADE WITH CER AND MAJOR TRADING PARTNERS
(Millions US Dollars)
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Trading Imports Exports Share of Total Trade
Partner 1993 1994 1993 1994 1993 1994
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CER 5,940.32 7,244.93 4,261.81 5,208.57 2.4% 2.4%
EU 29,194.38 35,912.39 30,654.11 34,355.54 13.96% 13.7%
US 33,607.62 39,201.75 42,008.23 49,370.65 17.64% 17.2%
Japan 55,624.56 67,302.48 30.952.23 34,299.64 20,2% 19.8%
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Source: ASEAN Secretariat.
The available data on Australian Foreign Direct Investment (FDI) indicates that ASEAN is not a major regional destination for Australian investors (see Table 11). During 1991, total Australian FDI flows was about A$ 36 billion out of which A$ 5.5 billion went to the ASEAN region. This is about 4.5% of Australian FDI flows for that period. The FDI flows to ASEAN is also heavily concentrated on only one or two ASEAN countries. Nearly 83% of Australian FDI during that period went to Singapore while another 14% went to Malaysia.
This has not always been the pattern though. In the early 1980s, nearly 38% of Australian FDI flows was to the ASEAN region. So while Australian FDI flows expanded nearly ninefold between 1981 and 1991, flows to ASEAN remained more or less at the same level. There appears to be a number of reasons for this shift of investors’ attention away from ASEAN but lack of information about changes in the investment regime and the growth prospects of ASEAN economies may have been key factors. If these are indeed the reasons, then it suggests that providing information on ASEAN investment opportunities and risks, ASEAN FDI regulations and strengthening links between business associations of the two regions can rekindle Australian investors’ interest in the ASEAN region.
Informal AEM-CER Ministers Consultation
In September 1995, the ASEAN Economic Ministers (AEM) held informal consultations with the trade ministers from the CER countries and agreed to pursue a wide-ranging list of areas for the linkage, from human resource development, customs and standards harmonization, investment facilitation to industrial cooperation. Of these, two areas have been prioritized and activities under them have begun and are well in progress. They are:
a) Customs Cooperation:
i. Creation of an AFTA-CER Customs Compendium:
ii. cooperation on implementing the GATT Customs Valuation Agreement; and
iii. facilitating cargo clearance between the two regions.
b) Standards and Conformance:
i. information Promotion on Product standards in both regions;
ii. information exchange and collaborative work on the implementation of the ISO 14000 series;
iii. promotion of alignment to international standards through joint programs;
iv. achieving mutual recognition of test results and certification programs;
v. publication of an ASEAN-CER Directory of Contact Points for Standards and Technical Regulations;
vi. cooperation on the development of testing and accreditation systems;
vii. exchange of information and human resource development on accreditation of quality system certification bodies.
Most of these activities are concerned with trade and investment facilitation rather than liberalization of trade and investment measures. Cross linkages that emphasize trade and investment facilitation activities are in general less trade and investment distorting than preferential trade liberalization and hence are much more in keeping with the principle of multilateralism.
Private Sector Participation
The importance of private sector inputs into the AFTA-CER linkage has been recognized. Various business organizations and industry clubs on both sides have been encouraged to play a more active role in this. In September 1996, the ASEAN Economic Ministers and their CER counterparts will be holding consultations with the private sector from ASEAN and the CER countries to further identify areas and activities which would promote trade and investment linkages between the two regions.
