Microsoft Word Cheongaftaeffects doc

AFTA effects on ASEAN Trade  

 

To manage preferential trade for ASEAN exporters, AFTA initially relied on the 40% 

regional content rule, but the alternative criterion of a tariff-classification change at the 

HS 4-digit level was added in 1995. The evidence for the utilization of ASEAN trade 

preferences is mixed. Baldwin (2006) reports that the utilization rates of AFTA were very 

low at around 3% of intra-regional trade, but a study by the Thai Office of Industrial 

Economics (2006) reports that, among products with CEPT rates below the MFN (Most-

Favored Nation) rates, the average utilization rate in 2006 was 51.2% of the value of Thai 

exports to other ASEAN countries while it was 26.9% of the value of Thai imports from 

other ASEAN countries. These findings may be consistent in that Baldwin’s figure was 

ASEAN-wide, and, since Singapore dominates intra-ASEAN trade and has zero MFN 

tariffs on almost all products, preferences are irrelevant for much of Singaporean trade 

and, by extension, much of intra-ASEAN trade. So, in effect, the non-use of preferences 

in Singaporean trade and its heavy weight in intra-regional trade may have diluted the 

high Thai utilization rate and resulted in a low region-wide average utilization rate.  

 

Beside the effect of the Singaporean trade regime on trade preference utilization, there 

are also other reasons for a low region-wide average utilization rate. Manchin and 

Pelkmans-Balaoing (2007) note three problems related to the CEPT’s rules of origin that 

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possibly explain a low average utilization rate of the CEPT scheme. Firstly, the CEPT 

scheme is relatively complex with MFN and CEPT tariff rates varying by product and 

ASEAN importing country. However, to reduce uncertainty in preferences, ASEAN 

countries have published their MFN and CEPT tariffs three years in advance.

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 Secondly, 

ASEAN exporters have some difficulty cumulating the required 40% local content.

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Thirdly, the CEPT’s administrative and compliance requirements are cumbersome as 

they lack transparency and uniformity.

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 However, these authors find that preferential 

tariffs stimulated intra-ASEAN trade when they were at least 25% lower than MFN 

tariffs. According to the ASEAN Statistical Yearbook (2006), in 1999, intra-ASEAN 

trade was US$132 billion and by 2003, it was US$206 billion, which represents a 56% 

increase. As a share of total ASEAN trade, intra-regional trade was 21% in 1999 and 

25% in 2003. As such, it appears, at the aggregate level, that AFTA may have increased 

intra-regional trade in the early 2000s.