With the Philippines’ ASEAN Chairmanship gaining ground, buzzwords and acronyms such as AFTA have resurfaced in many online and offline discussions. But what really is AFTA and what does it mean for businesses and the every day ASEAN citizen?
The ASEAN Free Trade Area (AFTA) is an agreement signed by the Philippines and nine other ASEAN Member States to boost local manufacturing in all ten ASEAN countries. It was initially inked in Singapore on January 28, 1992 by Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Viet Nam joined the agreement in 1995 followed by Lao PDR in 1997, and Cambodia in 1999.
AFTA was created with two things in mind: First, to increase ASEAN’s competitive edge as a production base targeted for the world market; and second, to attract more foreign companies or firms to invest in any of the ten ASEAN Members States.
ASEAN, through AFTA, intends to achieve those two big goals through a primary mechanism called the Common Effective Preferential Tariff Scheme (CEPT Scheme). Generally, the CEPT Scheme is intended to zap both tariff and non-tariff barriers in order to make buying and selling goods easier between and among the ASEAN Member States. The original signatories have agreed to bring down tariff rates to zero by 2010. Since Cambodia, Lao PDR, Myanmar, and Viet Nam joined at a much later date, they were given until 2015 to implement the reduction of taxes to be paid on certain kinds of imports or exports.
There are some general exceptions, however. ASEAN Member States can exempt certain products to protect national security, public morals, human, animal or plan life and health, articles of artistic, historic, or archaeological value.
Read the full text of the CEPT Scheme here:
So now that we’ve brushed up on the basics, here’s how AFTA has been able to make life a lot better for the common Juan in ASEAN:
#1 It makes doing business easier and faster
The ASEAN economy is on a roll and it has grown at an impressive rate over the years. Currently, the combined economy of all ASEAN Member States is the third largest in the world, thanks in large part to the vibrant business and trading activity going on especially between and among ASEAN Member States.
More ASEAN businesses, regardless of their size or scale are now able to buy, sell, and expand beyond their home base because it has become easier, faster, and cheaper to do minus the exorbitant amount of tariffs that they have to pay on top of the production and operational costs.
This is good news especially for micro, small, and medium enterprises (MSMEs) that make up around 90% of the total number of businesses and firms in the ASEAN region and even in the Philippines. This has also brought down the risks of doing business overseas, therefore encouraging more ASEAN-based businesses to expand to the greater ASEAN market. A strong synergy between the government and the private sector will help spread the promise that AFTA brings to our MSMEs.
Today, more and more Philippine brands are making a foray into the ASEAN Market and delighting more than 600 million ASEAN consumers.
#2 It makes ASEAN businesses more profitable
Every business aims to cut back on costs without sacrificing the quality of their goods or services, and to quickly earn back their initial investment. The reduction of tariff and non-tariff barriers has given businesses more bang for their buck. The CEPT Scheme, for example, brings tariffs down to 0-5% for a wide range of products, especially those that are being used by people every day.
With more cash to spend in either innovating their current portfolio of products or services, expanding their line or products, or taking their businesses to greater heights, AFTA has given several entrepreneurs the confidence to make their businesses thrive.
Philippine companies are among those who have been setting up shop in other ASEAN Member States. In fact, companies such as Unilab, Jollibee, and Universal Robina Corporation to name a few, have not only exported goods and services to other ASEAN Member States such as Singapore, Thailand, or Viet Nam, they have also set up plants, branches, and factories in these countries. Food companies like Jollibee take a bit out of the local market by adapting to the local taste. Jollibee’s branches in Viet Nam, for example, includes local flavors with ingredient sourced from local farms and suppliers.
#3 It gives us more job opportunities
The expansion of businesses across ASEAN has created more jobs. Businesses that have expanded their offices in any of the ASEAN Member States, for example, usually hire locals to keep the business running. This has provided locals with more career opportunities without having to leave their home countries.
Malaysian companies in the Philippines such as Resorts World Hotels and Malayan Banking Corporation have opened up more career opportunities to Filipinos in the hospitality industry and the banking sector. Thailand’s Siam Cement Group has also expanded its operations in the Philippines.
#4 It gives us more choices
The influx of more brands and products has given us a range of choices that are bound to suit our taste and budget. Indonesian products such as Kopiko, Fres Candy, Energen, and Extra Joss have made it into the grocery carts and pantries of many Filipinos. Thai beauty products such as PasJel, Miharu Skincare, and Very MWL have become a part of the beauty regimen of many Filipinas.
The presence of more choices isn’t just mean more brands are entering the ASEAN market. It also means that more brands are constantly innovating and trying to bring in something new for the discerning ASEAN shopper. This is a good thing because with more choices mean that we don’t have to settle for a something that doesn’t fit our preference to a T.
#5 It gives us more bang for our buck
The presence of competition has not only challenged many brands and companies to come up with the best products but it has also challenged them to price their items competitively. Businesses know that shoppers want their cash to go a long way and that’s why goods and services have to meet value for money proposition.
Shoppers and consumers have benefited greatly from this in the sense that companies and entrepreneurs doing business in ASEAN are getting more creative in packaging the best promotions and in making sure that prices stick to a comfortable level.
Most of all, because of the many ASEAN brands and products making it into the Philippine market, you don’t really need to go very far for a cup of Old Town Coffee or to sink your teeth into Bread Talk’s pork floss because with AFTA in place, you can find these favorites at your nearest mall or supermarket.
All of the above factors combined have helped develop our region among the most robust and resilient economic epicenters in the world. By 2050, intra-ASEAN trading is projected to propel the region into becoming the 4th largest economy in the world.
Although still in its early stages, AFTA’s impact can already be felt by Filipinos and other ASEAN citizens. There are currently ongoing efforts among ASEAN Members States in improving key areas that will help unleash the potential of AFTA.
The Philippines, for example, is looking into the improvement of its major port facilities and the competitiveness of its Internet services in order to make business easier and even more inclusive.
As the chair of ASEAN in 2017, the Philippines is in a unique position to steer the discussion in making sure that every person in ASEAN will be able to reap and enjoy the benefits that AFTA offers.