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AFTA and Intra-Regional Trade Liberalization 

 

History 

 

At the fourth ASEAN summit in Singapore in 1992, the original six ASEAN members 

(i.e., Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) launched the 

regional trade liberalization project known as AFTA. The member states’ primary aim 

was to accelerate trade liberalization and improve upon the provisions in the old 

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agreement on ASEAN Preferential Trading Arrangements signed in 1977.  The belief 

was that a free-trade area would benefit member states by increasing trade, investment, 

production opportunities, and foreign exchange earnings.   

 

At the heart of the AFTA declaration was the Agreement on the Common Effective 

Preferential Tariff (CEPT) Scheme. Article 4 of the CEPT agreement stated that member 

states would progressively reduce tariff rates on manufactured goods to 0-5% by 2008.

i

 

Fifteen product groups (i.e., vegetable oil, cement, chemicals, pharmaceuticals, 

fertilizers, plastics, rubber products, leather products, textiles, ceramic products,  glass 

products, gems and jewelry, copper cathodes, electronics, and wooden and rattan 

furniture) were chosen for the fast-track program, which would reduce tariffs to 5% or 

less by 2003. Other products included in the CEPT scheme were put on the normal track, 

whereby tariffs would fall to 5% or less by 2008.     

 

To qualify for preferential tariffs, at least 40% of the value-added of a product on an 

importing ASEAN member’s inclusion list had to be of ASEAN origin. Once a product 

was included in the CEPT scheme, quantitative restrictions had to be eliminated 

immediately while other non-tariff barriers had to be removed within five years. ASEAN 

members could exclude products from the CEPT in three cases: 1) Temporary exclusions, 

2) Sensitive agricultural products, and 3) General exceptions. Temporary exclusions 

referred to products for which tariffs would ultimately be lowered to 0-5%, but which 

were being protected temporarily by a delay in tariff reductions.

ii

  Sensitive agricultural 

products included agricultural raw materials or unprocessed products covered under 

Chapters 01-24 of the Harmonized System (HS), and similar agricultural raw materials or 

unprocessed products in other related HS categories. General exceptions referred to 

products which a country deemed necessary for the protection of national security, public 

morals, the protection of human, animal or plant life and health, and protection of articles 

of artistic, historic, or archeological value.  

 

The original scheme was revised in 1994 at the twenty sixth ASEAN Economic Ministers 

meeting. The tariff-reduction schedule was accelerated so tariff rates would be 0-5% by 

2000 for fast-track products and by 2003 for normal-track products. At the same meeting, 

the ASEAN Economic Ministers also agreed to implement the AFTA Council’s 

recommendations to bring some agricultural products into the CEPT and to transfer 

products from the temporary exclusion list to the inclusion list in five stages. In 1993, the 

trade value of all products included in the CEPT covered 85% of total intra-ASEAN and 

86% of total ASEAN trade. Malaysia and Singapore began implementing the CEPT 

agreement starting in 1993, Brunei Darussalam in 1994, Indonesia and Thailand in 1995, 

and the Philippines in 1996. It was expected that the simple average tariff of CEPT 

products would decline from 13.40 % in 1993 to 2.63 % in 2008.

iii

  

 

Between 1994 and 1998, ASEAN member countries further enhanced trade liberalization 

in the region by eliminating non-tariff barriers and quantitative restrictions; harmonizing 

customs nomenclature, valuation, and procedures; and developing common product-

certification standards. In 1995, ASEAN signed framework agreements for the intra-

regional liberalization of trade in services and for regional cooperation in intellectual 

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property rights. The AFTA project became more formal and binding with the signing of 

the Protocol on ASEAN Dispute Settlement Mechanism (DSM) in 1996. The ASEAN 

DSM would provide an expeditious and transparent way of settling disputes among 

member states regarding the implementation of ASEAN economic agreements. In the 

same year, the ASEAN Industrial Cooperation Scheme (AICO), whose main objective 

was to promote joint manufacturing industrial activities between ASEAN-based 

companies, was launched.

iv

 

 

The expansion of ASEAN to include Vietnam in 1995, Laos and Myanmar in 1997, and 

Cambodia in 1999 widened the AFTA project as all four countries were required to sign 

on to the AFTA agreement in order to join ASEAN.  In light of their later accession to 

the CEPT Agreement, the new member countries (the so-called CLMV countries) were 

scheduled to meet their tariff reduction obligations a few years later than the original 

ASEAN members. Vietnam was expected to realize AFTA in 2006, Laos and Myanmar 

in 2008, and Cambodia in 2010. Although the CEPT scheme had operated with strictly 

reciprocal preferences, the original ASEAN members later agreed in 2001 to unilaterally 

extend tariff preferences to ASEAN's new members from 2002 onwards so that 

integration of the CLMV countries would be accelerated. 

 

Spurred by the Asian Financial Crisis, ASEAN Leaders agreed at the sixth ASEAN 

Summit in 1998 to bring forward the establishment of AFTA to the year 2002 instead of 

2003 for the six original signatories to the CEPT Agreement. Members also agreed to 

adopt a harmonized tariff nomenclature by 2000. In addition, to encourage intra-regional 

investment and production that would complement the AICO, a framework agreement on 

the ASEAN Investment Area was signed.