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2. 

Historical Overview 

 

Attempts at organised regional co-operation between South-East Asian countries dates 

back to August 1967 when the ASEAN was established with original members 

Indonesia, Malaysia, the Philippines, Singapore and Thailand.

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As ASEAN’s initial concerns were issues of political security it was not until the 

1970’s that they tried to promote greater intra-regional trade and co-ordinate 

industrialisation policies (based on proposals made by the United Nations sponsored 

studies which called for regional import substitution, Park 1999).

4

  In 1977 a PTA 

was established specifically to encourage greater intra-regional trade.  The consensus 

from existing studies however, suggests that this initiative was disappointing (see e.g. 

Ariff 1994 and Garnaut and Drysdale 1994).  Tan (1992) attributed this 

disappointment to several elements including the limited coverage of the PTA, an 

intra-regional trade structure that was competitive rather than complementary, and the  

diminishing urgency of pursuing the task because of the continued growth and 

development of the region. 

 

What transformed the half- hearted attitude to co-operation were the changes in the 

global competitive environment during the late 1980’s and 1990’s.  As indicated by 

                                                 

3

 Expansions  to  the membership of ASEAN were Brunei in 1984, Vietnam in 1995, 

Myanmar and Laos in 1997 and Cambodia in 1999 and were attempts to include the 

perceived “natural” trading partners of existing members.  A number of other regional 

initiatives involving countries from this part of the world exist including the South Asian 

Association for Regional Cooperation (SAARC), the SAARC PTA (SAPTA), Austrialia and 

New  Zealand’s  Closer  Economic  Relations  Agreement  (CER)  and  the  South  Pacific 

Regional  Trade  and  Economic Cooperation  Agreement (SPARTECA).  See the  Asian 

Development Outlook 2002 for an overview.  

4

 Within the institutional framework of ASEAN, heads of states meet annually to ensure 

strong regional communication and cooperation at both the technical and political level.  

Anwar (1994) and Pomfret (1996) both suggest ASEAN lessened military tension and 

contributed to political stability in the area. 

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Menon (1996) and others, the formation of NAFTA and the EU raised questions about 

the access of ASEAN exports to the markets of North America and Europe.  

Furthermore, the competition to attract foreign direct investment (FDI) was 

intensifying and in recent years includes the emergence of China as a global economic 

power and location for Western FDI.

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In response, the founder ASEAN countries agreed to establish an ASEAN free trade 

area by the year 2008.  This target has been continuously mo ved forward and AFTA 

was officially established among the original six countries at the beginning of 2002 

(ASEAN Secretariat 2002).

6

  Although AFTA involves several measures to enhance 

regional trade such as the elimination of non-tariff barriers, the main mechanism for 

achieving AFTA has been the Common Effective Preferential Tariff (CEPT).  As 

Pangestu et al. (1992) indicate, the approach of the CEPT is essentially reciprocal and 

sectoral, which makes it more encompassing and less cumbersome than the 

product-by-product approach of PTAs (Athukorala and Menon, 1997).  This regime 

was applied to all products from ASEAN member countries defined as those that had 

at least 40% ASEAN content (ASEAN Secretariat, 1995).

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 ASEAN secretary general Rodolfo Sererino has recently commented that the Southeast 

Asian region should “integrate the regional economy to a closer degree to the integration 

of the Chinese market”.  The first round of high-level talks aimed at establishing a FTA 

between ASEAN and China started in May 2002.  When implemented the worlds largest 

FTA will generate estimated trade worth $1.2 trillion. 

6

 Under an amended plan in 1995, the reduction of existing tariff rates to 20% was to be 

effective within a time frame of five to eight years from 1st January 1993 and are to be cut 

further to 0-5% by 2003.  In 1998 the ASEAN governments agreed that the original six 

countries would aim to reduce tariffs to under 5% by 2002. Around 95% of intra-ASEAN 

trade tariffs representing 90% of intra-ASEAN trade is now in the 0-5% tariff range with 

the average tariff now 3.2%. 

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 Appendix  A  provides  details  and  indicates how  this  schedule  is  flexibly managed 

depending on the preferences of different countries over a range of sectors. 

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These characteristics of AFTA and the earlier less effective experience of regional 

integration might lead one to question the feasibility of a substantial expansion of 

regional trade.  It must also be remembered that ASEAN countries have achieved 

significant economic growth and development based on independent outward- looking 

policies.  OECD (1993) argues, therefore, that AFTA might not be a serious regional 

economic initiative but at best a hedge against other regional integration initiatives or 

a temporary failure of multilateral negotiations under the GATT-WTO regime.  It 

may be conjectured however, that the shock and upheaval caused by the Asian crisis 

provided ASEAN countries with renewed enthusiasm for maintaining and 

strengthening regional links and to increase intra-regional trade to counter economic 

uncertainty in the region and the rise of regional blocs elsewhere.