1. The CEPT Scheme: Basic Features
Q1. What are the objectives of AFTA?
The ultimate objective of AFIA is to increase ASEAN's competitive edge as a production base geared for the world market. A critical step in this direction is the liberalization of trade in the region through the elimination of intra-regional tariffs and the elimination of non-tariff barriers. This will have the effect of making ASEAN's manufacturing sectors more efficient and competitive in the global market. At the same time, consumers will source goods from the more efficient producers in ASEAN, thus creating intra- ASEAN trade.
As the cost competitiveness of manufacturing industries in ASEAN is enhanced and with the larger size of the market, investors can enjoy economies of scale in production. In this manner, ASEAN hopes to attract more foreign direct investments into the region. This will in turn stimulate the growth of supporting industries in the region for many direct foreign investments.
Q2. What is the CEPT Scheme?
The Common Effective Preferential Tariff Scheme is a cooperative arrangement among ASEAN Member States that would reduce intra- regional tariffs and remove non-tariff barriers over a 15-year period commencing 1 January 1993. The goal of the Scheme is to reduce tariffs on all manufactured goods to 0-5% by the year 2008.
The CEPT Scheme is the main instrument for making ASEAN a free trade area in 15 years. This means that ASEAN Member States shall have common effective tariffs among themselves in AFTA, but the level of tariffs with non-ASEAN countries shall continue to be determined individually.
Q3. What products are covered under the CEPT Scheme?
All manufactured products, including capital goods and processed agricultural products, and those falling outside the definition of agricultural products are covered by the CEPT Scheme. Agricultural products are excluded from the CEPT Scheme.
Agricultural products are defined as: 1) agricultural raw materials and unprocessed products covered under Chapters 1-24 of the Harmonized System Code (HS), and similar agricultural raw materials and unprocessed products in other related HS headings; and 2) products which have undergone simple processing with minimal change in form from the original products.
Q4. What kind of exclusions or exceptions are allowed under the CEPT Scheme?
There are three (3) instances when a product may be excluded from the CEPT Scheme:
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General Exceptions. A Member State may exclude a product which it considers necessary for the protection of its national security, the protection of public morals, the protection of human, animal or plant life and health, and the protection of articles of artistic, historic or archaeological value. The provision on General Exceptions in the CEPT Agreement is consistent with Article X of the General Agreement on Tariffs and Trade (GATT).
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Temporary Exclusions. Member States which are temporarily not ready to include certain sensitive products in the CEPT Scheme may exclude such products on a temporary basis. Products in the Exclusion List cannot enjoy the CEPT tariff from other ASEAN Member States. The Exclusion List does not in any way relate to products covered under the General Exceptions provision.
The CEPT Exclusion List would be reviewed in the e At the review, efforts would be made to remove Products in the CEPT Exclusion List and to subject them to a schedule of tariff reduction to brinq down the tariffs to 0-5% within the remaining 7 years.
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Unprocessed Agricultural Products. These are agricultural products as defined in Q3.
Q5. What is the program of tariff reduction under the CEPT Scheme?
There are two programs of tafiff reduction under the CEPT Scheme: the Fast Track Program and the Normal Track Program.
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The Fast Track Program
a. Tariffs above 20% will be reduced to 0-5% within 10 years (i.e., by 1 January 2003).
b. Tariffs at 20% and below will be reduced to 0-5% within 7 years (i.e. by I January 2000).
The Fast Track Program covers 15 product groups identified for accelerated tariff reduction by the Fourth ASEAN Summit. They are:
- vegetable oils
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- cement
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- chemicals
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- pharmaceuticals
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- fertilizer
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- plastics
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- rubber products
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- leather products
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- pulp and paper
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- textiles
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- wooden and rattan furniture
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- ceramics and glass products
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- gems and jewelry products
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- copper cathodes
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- electronics
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The Normal Track Program
- first, to 20% within 5 to 8 years (by 1 January 2001); and
- subsequently, to 0-5% in 7 years according to an agreed schedule ending on 1 January 2008).
b. Tariffs of 20% and below will be reduced to 0-5% within 10 years (i.e., by I January 2003).
The reduction from existing tariff rates to 20% shall be determined by each Member State provided that at the end of the 8th year, the CEPT rate should not be more than 20%. This does not preclude Member States from starting their tariff reductions at a later date than I January 1993 provided that the targeted tariff rate is achieved by the year 2001.
In order to promote the commonality of tariff rates in the subsequent years, Member States have agreed to reduce the tariff rates in three tranches according to the following time schedule:
Q6. What is the schedule of tariff reduction under the two programs?
The Third AFRA Council Meeting in December 1992 announced the tariff reduction schedules of each Member State based on the general formula for the two programs. (Table 1a, b, c and d). The schedules are indicative in nature, i.e., Member States are not precluded from a faster or slower rate of tariff reduction for each tariff line within the specified time frame.
Q7. What are the conditions for a product to be eligible for concessions under the CEPT?
There are three (3) conditions:
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The product has to be included in the Inclusion List of the exporting and the importing countries and must have a tariff of 20% and below;
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It has to have a program of tariff reduction approved by the AFTA Council;
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It has to be an ASEAN product, i.e., it has to satisfy the local content requirement of 40%.
Products with tariff rates of 0-5% shall be deemed to have satisfied these conditions under the CEPT Agreement and shall also enjoy the concessions.
Q8. What is the local content requirement for CEPT?
The CEPT Scheme has set a local content requirement of 40%, that is a product is considered as originating from ASEAN Member States if at least 40% of its contents originates from any Member State.
The 40% local content requirement refers to both single country and cumulative ASEAN content.
Q9. How does a firm trading in a CEPT eligible product apply for a Certificate of Origin to comply with the local content requirement?
The firm must apply in writing to the relevant Government authorities in his country requesting for the pre-exportation verification of the origin of the product. At the time of carrying out the formalities for exporting the product under preferential treatment, the exporter shall apply for a Certificate of Origin (CO). The Government authorities designated to issue the CO shall carry out the proper examination to determine conformity with the Rules of Origin. The CO shall be issued at the time of exportation or soon thereafter. (The details are contained in the Operational Procedures for the CEPT).
Q10. What other measures,, apart from tariff reduction, are covered under the CEPT Scheme to promote free trade within ASEAN?
Apart from tariff reduction, the CEPT Scheme provides for the elimination of quantitative restrictions and non-tariff barriers, as well as exceptions to foreign exchange restrictions on CEPT products.
Member States shall eliminate all quantitative restrictions (quotas, licenses,etc) on CEPT products upon enjoyment of concessions applicable to these products.
As regards non-tariff barriers, these shall be eliminated by Member States on a gradual basis within a period of five years after the enjoyment of concessions applicable to the CEPT products.
Member States shall also make exceptions to their foreign exchange restrictions relating to payments, as well as repatriation of such payments, on CEPT products.
Q11. Are there any other areas of cooperation under the CEPT Agreement?
To supplement and complement the liberalization of trade within ASEAN, Member States have agreed to explore further measures on border and non-border areas of cooperation. These include the harmonization of standards, reciprocal recognition of tests and certification of products, removal of barriers to foreign investments, macroeconomic consultations, rules for fair competition, and promotion of venture capital.
Q12. What are some of the measures that have already been initiated in these areas?
As the CEPT goes on stream, Member States have started taking steps to ensure its effective implementation. For one, products beyond the HS 6 level are being reviewed to ensure comparability of product nomenclature. The ASEAN Economic Ministers Meeting (AEM) has also established the ASEAN Consultative Committee on Standards and Quality (ACCSQ) which has already started working on the following areas:
In addition, the First Consultative Forum on Foreign Direct Investment in ASEAN Countries was convened in February 1993, and will meet regularly, to exchange views and consult on how to enhance the investment climate for foreign direct investment in the ASEAN region.
Q13. What are the institutional arrangements for the CEPT for AFTA ?
The ASEAN Economic Ministers have established the AFTA Council for the purpose of implementing the CEPT Agreement. The Council is composed of Ministers from ASEAN Member States and the Secretary- General of ASEAN. The AFIFA Council is responsible for supervising, coordinating, and reviewing the implementation of the CEPT Agreement. It is assisted in the performance of these functions by the Senior Economic Officials' Meeting (SEOM) and the ASEAN Secretariat.
The ASEAN Secretariat is primarily responsible for coordinating and monitoring the implementation of the Agreement.
Q14. What are the safeguard provisions of the CEPT Agreement?
If as a result of the implementation of the CEPT, the import of.a particular product is increasing to an extent that it causes injury to sectors or industries producing like or competitive products, the importing Member State may suspend preferences provisionally as an emergency measure. Such suspension shall be consistent with Article XIX of the GATT.
A Member State taking such an emergency action shall give immediate notice to the AFTA Council through the ASEAN Secretariat, and such action may be the subject of consultations between concerned Member States.
Q15. Does the CEPT-AFTA create a regional trade bloc?
No, it will not turn ASEAN into a regional trade bloc. In fact, the CEPT encourages not just intra-ASEAN trade liberalization, but also liberalization on an MFN basis. This is done through a unique provision in the CEPT Agreement which allows Member States that reduce their tariffs to 0-5%, even on a Most-Favored Nation Basis (MFN), to enjoy the CEPT concessions from other ASEAN Member States.
Q16. Is the CEPT Scheme consistent with GATT principles?
CEPT- AFTA is consistent with the GATT and is an outward-looking arrangement. The CEPT Scheme seeks to establish a common effective preferential tariff within the region and does not raise trade barriers against non-ASEAN economies.
Q17. What is the status of the CEPT-AFTA notification ir7 the GATT?
ASEAN has notified GATT of its CEPT-AFIFA in accordance with the Article IV on Trade and Development.
Q18. What is the relationship between the CEPT Scheme and the AIJV Scheme?
The CEPT Scheme takes precedence over the ASEAN Industrial Joint Venture (AIJV) Scheme. This means that for products covered under the CEPT, the tariff will be allowed to slide in accordance with the CEPT Schedule and the main benefit of the AIJV, which is the 90% margin of preference, will slide in tandem.
Q 19. Wha is the relationship between the CEPT and the PTA ?
Products covered under the ASEAN Preferential Trading Arrangement (PTA) may be transferred to the CEPT. In such cases, so as not to erode the concessions for the PTA products, Member States shall take into account the existing Margins of Preference (MOP) and the resulting effective tariffs under the PTA as of 31 December 1992.
Concessions under the CEPT shall be no less favorable than the PTA concessions existing as of 31 December 1992. In the case of Indonesia and the Philippines, the concessions shall be in accordance with the target level of MOP laid down by the 1987 protocol which is 50% over a 7-year period.
All products under the PTA which are not transferred to the CEPT Scheme shall continue to enjoy the MOP existing as of 31 December 1992.
Q20. What is the status of submission by Member States of their CEPT Product Lists?
Member States have confirmed their submissions of the CEPT Product Lists during the Fourth AFTA Council Meeting held in Singapore on 6 October 1993. In accordance with the directive of the 25th ASEAN Economic Ministers Meeting on 7-8 October 1993, the ASEAN Secretariat has made the Lists available to interested parties since I November 1993.
Prior to their confirmation of the CEPT Product Lists, Member States have exchanged their indicative lists of products based on the general formula for tariff reduction during the Third AFTA Council Meeting in December 1992. The lists were subsequently updated at the Fourth Interim Technical Working Group in March 1993 and in the SEOM Meeting held in Cebu on 6-8 September 1993.
Q21. What information is contained in the CEPT Product Lists?
The CEPT Product Lists contain:
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the product description based on the Harmonized System (HS) Code;
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the lists of products for inclusion, temporary exclusion, general exceptions, and those classified as unprocessed agricultural products; and
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the tariff reduction schedule under the Fast and Normal Tracks up to the year 2008.
The CEPT Product Lists are compiled from the submissions of all ASEAN Member States covering 98 Chapters of the HS Code.
The summary of the CEPT Product Lists is in Table 2.
Q22. What is the status of implementation of the tariff reduction schedules indicated in the CEPT Product Lists?
The Fourth AFTA Council has endorsed, and the 25th AEM has approved, the initial programs of tariff reduction of the Member States. On the basis of their submissions, I January 1994 will be the starting year for implementing tariff reductions of Member States under the following schedule (Table 3):
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Fast Track Program
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Fast Track Program
Tariffs of 20% and below:
Indonesia, Malaysia, Philippines and Singapore
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Normal Track Program
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Normal Track Program
Although Member States have the option of up to three years to start the implementation of their tariff reductions, they have decided to move the starting year of the initial program of tariff reduction which will all be effective by 1 January 1994 except for Brunei Darussalam which, due to administrative requirements, will start its tariff reduction by 1 June 1994.
Q23. How many tariff lines have been offered for tariff reduction commencing 1994?
Member Countries have offered the following tariff lines for tariff reduction commencing in 1994 (Table 4):
- Brunei Darussalam
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- - 1,408 product groups (HS 6 level effective I June 1994)
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- Indonesia
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- - 2,001 tariff lines (HS 9 level)
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- Malaysia
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- - 3,776 tariff lines (HS 9 level)
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- Philippines
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- - 1,052 tariff lines (HS 8 level)
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- Singapore
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- - 373 tariff lines (HS 9 level)
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- Thailand
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- - 1,327 product groups (HS 6 level)
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A. The Inclusion Lists
Q24. How many products are in the CEPT Inclusion List?
Out of a total of 5,149 product groups submitted by Member States, at least 79% of the products at the HS 6 level are included in the CEPT Scheme in each Member State (Table 5).
As to tariff lines, the Inclusion Lists account for about 78% to 90% of the total tariff lines for Member State. (Table 6). Q25. What is the coverage of products in the inclusion Lists ?
The products included in the Fast Track program are mainly those in the 15 product groups agreed to by the Fourth ASEAN Summit in Singapore. They cover 34 HS Chapters.
For the Normal Track Program, there are variations in the emphasis by each Member State. Some products which are common in most Member States are : machinery equipment, electrical equipment, and iron and steel products. Machinery and mechanical appliances form the single largest product group for all Member States.
Q26. How do the confirmed Inclusion Lists compare with the indicative lists exchanged and announced by the Third AFTA Council in December 1992?
The comparison (Table 7) shows that:
- There is an increase in the total number of products in the Fast Track Program by 336 items.
- There is a decrease in the total number of products in the Normal Track Program by 15 items.
- There is an increase in the total number of products in the Inclusion Lists by 321 items.
B. Lists of Temporary Exclusions
Q27. How many products are in the Temporary Exclusion Lists ?
Altogether, 3,321 tariff lines are in the Exclusion Lists (Table 8). The number of exclusions in each Member State ranges from 0 to 1,654 items.
Q28. What is the coverage of products in the Exclusion Lists?
The common products which are in the Exclusion Lists of all Member States are motor vehicles and mineral fuels.
Q29. How do the confirmed Temporary Exclusion Lists compare with the indicative lists exchanged and announced by the Third AFTA Council in December 1992.
Compared with the submissions in December 1992, there is a decrease in the total number of temporary exclusions from 3, 837 items to 3,321 items (a reduction of 516 items). (Table 8).
C. General Exceptions
Q30. How many products are in the Genera! Exceptions Lists?
Only a small proportion (ranging from 0 to 3.07%) of the total tariff lines in each Member State is in this category (Table 9).
Q31. What is the coverage of products undor the General Exceptions?
The common items in the General Exceptions Lists of all Member States include live plants and animals, alcoholic beverage and armaments.
D. Agricultural Products
Q32. What about agricultural products?
Although agricultural products are not included in the CEPT, Member States have unilaterally offered a large number of these products in their Inclusion Lists for both the Fast and Normal Track Programs and their Temporary Exclusion Lists (Table 10).
November 1993 ASEAN Secretariat
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