PHUKET: Eliminating tariffs that financially penalize members of ASEAN, is one
of the stated long-term goals of the AEC (ASEAN Economic Community).
When economic unions were
proposed in the United States and Europe, tariffs became a defining factor that
would later determine the outcome of those unions.
Now that ASEAN has decided to
form an economic union – the AEC – in order to exert greater regional influence
and become more financially prosperous, member states must decide on an
effective tariff structure that won’t put any of its 10 member at a
disadvantage.
Indeed, this will prove a
challenge. The first question is: How will the AEC practically eliminate
tariffs and promote equal business opportunities among member nations?
According to the Economic
Research Institute for ASEAN (ERIA), a government-funded think tank, the AEC’s
goal is to eliminate 95% of tariffs between ASEAN and other countries that it
has made Free Trade Agreements (FTA) with.
ASEAN currently holds separate
trade agreements with Australia, India, China, South Korea and Japan. These
individual agreements between ASEAN and any one non-ASEAN country, are commonly
referred to as "ASEAN +1".
With the AEC’s economic
integration deadline of 2015 fast approaching, ASEAN must now decide on how it
will approach the daunting task of eliminating tariffs.
A similar case arose when the
European Union decided to adopt a single external tariff applied by all of its
member-states to imports from non-members.
Internal trade between the EU was
aided by removal of barriers to trade, such as tariffs and border controls. The
case of the Eurozone was helped further by not having currency differences to
deal with.
With ASEAN, according to a recent
ERIA policy brief, a "Common Concession" approach is to be applied.
This means that: "A country [would] strategically focus its policy
discretion [and] allow for sensitive industries on a more limited number of
products.
"Assuming 95% tariff
elimination is the target, for example, a country can choose up to 5% of (its)
products to protect, while opening up the rest [to free trade]," suggest
the report’s authors, Yoshifumi Fukunaga and Arata Kuno.
Opening up a product to trade
means that no tax, subsidy or tariff will artificially alter the price of
production for certain goods.
Such restriction-free trade may
lead, some fear, to what is known in financial lingo as "dumping".
According to about.com, dumping is: "An informal name for the practice of
selling a product in a foreign country for less than either the price in the
domestic country, or the cost of making the product."
It is illegal in many places to
dump products, so that domestic manufacturers are protected from unfair
competition.
For example, in Thailand,
government subsidies (derived from taxes) help the country to produce rice at a
lower price than its actual cost.
However, some experts, such as
Jonathan Head, of the BBC’s Southeast Asia Bureau, suggest that subsidies may
ultimately wind up hurting the Kingdom in the long run.
He points out that even though
Thailand has been the World’s leading rice producer for over two decades, its
farmers are as poor and susceptible to weather as they have ever been.
Most economists believe that
subsidies are a form of "protectionism" and are inherently bad for
trade because they make domestic goods and services artificially competitive
against imports. But, Thailand is by no means the only ASEAN country with
inward-looking economic policies.
A practical solution, in other
words, detailed legislation guaranteeing "open" trade on certain
products, will need to be enacted before the union takes effect.
Though few could argue that free
trade will hurt ASEAN, perhaps the union should first focus inward, and decide
what to do among members before making Free Trade agreements with non-members.
Chris Hudon
Business & Investment Opportunities
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