Asean ups the pace

18 December 1995 00:00  [Source: ACN]

By Patricia Adversario

Asean members have agreed to expedite Afta and set the year 2003 as the deadline for zero tariffs

Recent moves by the Association of Southeast Asian Nations (Asean) to set a target date for zero tariffs by the year 2003 have highlighted the need for the manufacturing industry in the region to build economies of scale to survive, Asean-based industry leaders told ACN.

Asean economic ministers last week agreed to speed up and develop the Asean Free Trade Area (Afta) by aiming for a zero tariff rate by the year 2003. The previous decision was to cut tariffs to between zero and 5% in 2003. The economic ministers last week also decided to terminate the sensitive list by the year 2010 at the latest.

Asean member countries have also agreed to a new scheme for industrial co-operation which will allow partners in joint projects to enjoy tariff cuts faster than the planned schedule of trade liberalisation under Afta. The new Asean Industrial Co-operative (Aico) scheme is expected to be signed by Asean member countries in April next year.

Projects eligible under Aico would immediately enjoy tariff cuts under the Afta's Common Preferential Tariff (Cept) without having to wait for year 2003 as planned under Asean's trade liberalisation programme.

'The need to be more competitive has nothing to do with any scheme. It's a question of survival,' said Paul Low, vice-president of the Federation of Malaysian Manufacturers.

He added that to meet the year 2003 target, manufacturers need to form strategic alliances. He said these alliances can take the form of companies acquiring cross shareholdings in their partner's operations or forming trading partnerships. Alternatively, companies, which produce the same products can see their counterparts in other countries to build up their production volumes. They could also jointly set up a regional distribution network.

'Between now and 2003, manufacturers, particularly local companies, will have to expand their operations in Asean either by investing in another Asean country or by co-producing under the Aico scheme. Producers could seek out their counterparts overseas to build economies of scale. Instead of competing, they should complement each other.

'For companies which are not big enough to expand operations to another country, they have to improve local operations by reducing costs, increasing productivity, and undertaking value-added production,' said Low.

Regardless of the scheme, companies in the region would have to do these things to survive. If they do nothing, they won't be able to compete, said Low.

Robert Chua, president of the Singapore Manufacturers Association, said the Aico scheme will make it easier for investors to build economies of scale as it facilitates the redistribution of manufacturing activities around the region. For countries participating in the scheme, it will be easier for producers to bring components in and out of countries in the region.

He added that Singapore manufacturers which have begun to invest in the region should be able to cope with the demands of increased competition brought by the lower tariffs. Singapore was one of the early proponents of a fast-track Afta scheme.

Investors and producers from the less industrially developed countries in Asean such as the Philippines and Vietnam said they could meet the 2003 deadline for zero tariffs if key infrastructural inputs were in place.

Meneleo Carlos, from the Chemical Industry Association of the Philippines, said that applying zero tariffs by 2003 is 'a little tight'. He added that infrastructural policy reforms in the Philippines have to be accelerated to apply the low tariffs.

'Moves to liberalise the manufacturing sector must go hand in hand with moves to also liberalise the agricultural and services sector, for example, banking, telecommunication, and insurance. The government also needs to improve infrastructures such as ports, airports and telecommunication facilities.'

Synthetic resin producer Resin Inc said that with the early Afta date for zero tariffs, its margins are expected to come down from 20% to 5%. 'But we cannot increase prices because of increased competition in the region. We would have to cope with the decreased margins by increasing production volumes,' a spokesman said.

Jose Concepcion, chairman of the newly-formed executive committee of the Asean Chamber of Commerce and Industry (CCI) said its Manila CCI members are looking at drawing up a plan for the country's petrochemical industry under the Aico scheme. 'There are possibilities of forming joint-venture arrangements to jointly undertake investments either in the upstream or downstream petrochemical sectors.' He said details were still being discussed and declined to elaborate.

A key investor in Vietnam's petrochemical industry who declined to be named said that with decreased tariffs, 'it is almost conditional to obtain some form of duty protection for at least the first five years of operation'.

His company aims to start up plant operations in 1998.

'By the year 2006, our plant will be strong enough to stand up to global competition but I during the first seven to eight years of operation, we need some form of protection. We are ready to go ahead with our plan because the government has assured that it will give us some form of protection,' said the investor.

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