THE CHEMICAL INDUSTRY
AND REGIONAL ECONOMIC INTEGRATION
Message of Rodolfo C. Severino, Secretary-General
of the Association of Southeast Asian Nations,
to the 32nd annual conference of the ASEAN Chemical Industry Clubs
Manila, 15-17 October 2002
The year 2002 marked a significant milestone in ASEAN economic cooperation. The first six signatories to the ASEAN Free Trade Area – Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand - have substantially achieved the aim of reducing tariffs to 0-5 percent on almost all of their products in the Common Effective Preferential Tariff scheme.
AFTA was created to increase intra-ASEAN trade, to attract more foreign direct investment into the region and to strengthen ASEAN as a globally-competitive production base.
The average tariff on intra-ASEAN trade is now 2.89 percent, down considerably from the 12.76 percent level in 1993, when the tariff-cutting process started. The lowering of tariffs was accompanied by an expansion of intra-regional trade from US$44.2 billion in 1993, when AFTA was launched, to US$97.8 billion in 2000.
ASEAN’s newer members – Cambodia, Laos, Myanmar and Viet Nam - are not far behind in implementing their commitments. The average CEPT rates for the newer members currently stand at 6.77 per cent.
Free trade is not just about cutting or removing tariffs on trade. ASEAN countries have to make sure that non-tariff barriers such as those associated with standards, regulations and administrative procedures are removed, too. In other words, market access needs to be addressed to ensure the free movement of goods among ASEAN countries. This is essential for economic integration.
ASEAN countries are working on the liberalization of trade in services, a process that is much more complex than the negotiations on trade in goods. Transport of goods has to be made easier and less expensive.
To integrate the market more fully, product standards need to be harmonized, as do conformity assessment procedures and technical regulations. Even if tariffs are done away with, even with the most efficient transportation, true market integration will be out of ASEAN’s reach if the flow of products is hampered by the need to test the products in each country that imports them, if standards are not equivalent throughout ASEAN and if regulations are not compatible or if they are different among ASEAN countries.
The free flow of goods is being hampered by products being tested more than once when they move from one ASEAN country to another, causing delays, wasting precious time and jacking up costs. ASEAN is addressing this situation by entering into mutual recognition arrangements so as to reduce duplication in the testing and certification of products.
In December 1998, ASEAN addressed this problem head-on by signing the framework agreement on mutual recognition arrangements, or MRA. A number of sectors were identified for ASEAN to look into possible MRAs such as electrical and electronic equipment, telecommunications, cosmetics, pharmaceuticals and food products. The implementation of the MRAs will have a positive impact on intra-ASEAN trade, which, for the sectors just mentioned, accounts for more than 40 percent of intra-ASEAN exports or about US$ 38 billion in the year 2000.
An example is the MRA for electrical and electronic equipment, which was signed in April 2002, allowing electrical and electronic equipment to be exported among ASEAN countries without additional tests and certification. Eight ASEAN countries would mutually recognize the test report and certificates in 2003; and the remaining two countries will join in soon.
Work in the cosmetics sector is even more comprehensive. Regulators and the industry in this sector have been collaborating in harmonizing technical requirements and getting other technical barriers to trade removed. Seven important documents have resulted from this work. They cover illustrative lists of cosmetics products by category, product registration requirements and procedures, common labeling requirements, a handbook on ingredient listings, common claims guidelines, common import and export requirements, and manufacturing practices.
The ASEAN Economic Ministers will be signing the Agreement on ASEAN Cosmetic Regulatory Scheme before the end of the year. The first stage is a mutual recognition arrangement under which signatories to the agreement are to recognize the product registration approval of any signatory in accordance with agreed rules and procedures. The second stage is the ASEAN Cosmetic Directive, which lays down the requirements for cosmetics products to comply with in all signatory-countries. A product produced or marketed in any signatory-country would be able to enter other signatory-countries.
None of these agreements would have been possible without the existing framework of regional cooperation. ASEAN values the collaborative role played by the private sector in these initiatives.
In today’s market, there is growing recognition and evidence that implementation of product and service quality policies with respect to regional and international standards significantly improves the performance of businesses and it is one of the key factors in achieving an enhanced competitive position. A competitive, efficient and innovative industrial base is essential if we are to see continued growth and the consolidation of business gains and the resulting benefits for our people.
In an increasingly competitive global economy, in an increasingly globalized economic environment, industries and companies in ASEAN must be outward looking. And they must cooperate, even as they compete. It is often the only way for them to survive and to prosper. And they should keep pressing governments to provide the necessary policy environment within ASEAN for freer regional trade, stronger competitiveness and higher productivity.
