ASEAN Moves Forward on Freer Trade


In the first major trade agreements in the post-Doha era of trade policy negotiations the Economics Ministers of the ten countries of the Association of Southeast Asia Nations (ASEAN) have reached a comprehensive free trade agreement (FTA) with Australia and New Zealand, a merchandize only agreement with India and an investment agreement with China. These outcomes are the results of years of discussions on trade policies that have not been slowed down by the failure to reach a WTO agreement.

ASEAN includes ten diverse countries ranging from Brunei with only 400,000 people to Indonesia with 225 million people and a per capita GDP of $4,900 per year on a purchasing power parity basis. It includes Singapore with per capita GDP of $37,400 per year, Malaysia at $14,300, Thailand at $10,700 and the Philippines at $5,900. Cambodia, Laos and Vietnam have per capita GDP of $3,000-4,000 per year, and the much maligned Myanmar has per capita GDP of $2,200 per year. Their combined GDP in 2007 was $1.3 trillion, up 6.5 percent from 2006. Imports and exports among the countries and to the rest of the world totaled $1.4 trillion in 2007. Their population of 575 million people is growing 1.9 percent per year. ASEAN’s internal tariff reduction commitments have led to 98 percent of all products being on the list for tariff reductions, 89 percent of which have tariffs of 0-5 percent. Tariffs have been eliminated for 63 percent of all listed products, with the average tariff reduced from 2.6 percent in 2007 to 1.9 percent in 2008.

The AANZ FTA covers goods, services, foreign direct investment and intellectual property and is expected to be signed in December. It is the first time New Zealand and Australia jointly negotiated an FTA and the first comprehensive FTA for the ASEAN countries. ASEAN-New Zealand trade grew by 27 percent in 2007 to $6 billion, while ASEAN-Australia trade increased 15 percent to $42 billion. Agricultural market access was a key issue for Australia and New Zealand. Autos are a sticking point with Australia finishing details with Malaysia and Indonesia. Australia, which already has a FTA with the U.S., says this is the largest FTA it has ever negotiated.

The ASEAN-India trade agreement only covers merchandize and will also be signed in December. Talks on services and foreign direct investments will begin in January with completion expected by the end of 2009. These agreements reflect how much trade has opened up in recent years. India’s Minister of Commerce and Industry Kamal Nath noted that five years ago India had tariffs on palm oil, a major export product for Malaysia and Indonesia, of 50 or 60 percent, but today has a zero tariff. Tariffs on industrial goods were 20-25 percent five years ago compared to average peak tariffs of 9.7 percent today. Despite that progress, the “exclusion list” includes 489 products with about five percent of the value of current trade. The countries will eliminate tariffs on 71 percent of products by the end of 2012 and another 9 percent by the end of 2015. Import tariffs on “sensitive items” ranging from 8 to 10 percent will be reduced to 5 percent by 2015.

The ASEAN countries and China already have bilateral agreements on goods and services and plan to have the investment agreement completed by December of this year. This recognizes that increased investment flows are the natural result of more open trade in goods and services. Total trade has grown by 30 percent per year since 2003 to $171.1 billion in 2007.

While the ASEAN Economics Ministers were pushing those four agreements forward they also met with trade ministers from Japan and South Korea for long-term economic policy discussions. Japan and South Korea are competitors, customers and sources of goods, services and investments. Total trade between ASEAN and Korea in 2007 grew 9.5 percent to $61.3 billion. ASEAN and Korea are working on an investment agreement to be completed by December. Total trade between ASEAN and Japan increased by 7.0 percent in 2007 to $73.1 billion. Japan is the largest country for foreign direct investment in ASEAN.

The ministers from the 16 countries also expressed support “to intensify efforts” to restart the WTO Doha Round talks. They want to preserve the gains made and have constructive engagements to conclude the talks. Despite those positive sentiments, India continues to oppose any agreement that would impact Indian farmers. The ASEAN Economics Ministers are aware of the benefits of the rules-based trade policy system of the WTO. While each country has specific products they want to protect, they realize that first working out details within their ten country block and then agreeing with other countries one-by-one is a time consuming process. If most of the issues could be resolved at the WTO level, specific concerns could then be addressed on a country-by-country basis.

In November 2007 the ASEAN countries signed the Declaration on the ASEAN Economic Community Blueprint to provide further economic integration by 2015. The Economics Ministers have also considered ASEAN +3 or ASEAN +6 FTAs as the next steps in economic integration. Achieving either of those would be a long-term project.

The good news is that the ASEAN Economics Ministers understand the benefits of increasing trade and that standing still on trade policy is not an option. Their people want a rising standard of living that requires increased trade. While some developed countries lament the shift in political power on trade to developing countries, this shift puts more power in the hands of political leaders who want to increase trade to increase incomes rather than protecting the incomes of existing special interest groups. The ASEAN Economic Ministers should continue to lead and drag along reluctant developed and developing countries.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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