Speech by Rodolfo C. Severino, Secretary-General

of the Association of Southeast Asian Nations,

before the Philippine Chamber of Cosmetics Industry

Manila, 7 March 2002

            This is a welcome opportunity to exchange views with the Philippine Chamber of Cosmetics Industry, and I do hope that we will have a chance to have such an exchange after my talk.

             When I told my 12-year-old daughter that I was taking part in a meeting with the cosmetics people in Manila, she wondered out loud why in the world I would be doing that, surprised that I was interested in cosmetics at all.

              I explained to my daughter, Rhoda, that cosmetics was one of the most important industries in ASEAN and, just as significantly, was at the vanguard of ASEAN’s endeavor to create a common economic space in Southeast Asia.  We did not pursue the matter, but if she had pressed me further, I would have told her about how ASEAN was trying to integrate the regional economy and about the cosmetics industry’s role in this effort.

              I would have told her that on the first day of this year the first six members of ASEAN – Brunei Daurssalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand – had achieved their goal of reducing the tariffs on the products traded among them to 0-5 percent, with some exceptions.  Since these six countries do most of the trading in ASEAN, we can say that ASEAN now has only minimal tariffs or none at all on trade within the region.  The average tariff on intra-ASEAN trade is now 3.2 percent, down considerably from the 12.76 percent level in 1993, when the tariff-cutting process started in 1993.  Tariffs on the trade in cosmetics among ASEAN’s first six members are even lower, averaging 2.88 percent this year, as against 12.43 percent in 1993.   In terms of tariffs, then, ASEAN is now a free trade area.  The ASEAN Free Trade Area, or AFTA, has now been achieved.

              What is the significance of this?

             This means that ASEAN is on its way to being an integrated market.  It sends a powerful message to the international business community, as well as to the ASEAN business community, that a company that invests in any of the first six signatories to the AFTA agreement now has most of the region as a market.  It means a stronger attraction to investments, and thus more jobs; greater economies-of-scale, and thus improved efficiency and lower costs; more competition, and thus lower prices.

              Such an integrated market was the vision of ASEAN’s leaders when they launched the AFTA process in 1992 and committed themselves to a definite tariff-cutting schedule, a schedule that was advanced twice since then.  As tariffs dropped, trade among ASEAN countries expanded from US$44.2 billion in 1993 to US$97.8 billion in 2000.  The trade in cosmetics among the ASEAN-6 soared during that period from US$140 million to US$354 million.

               As I have said, ASEAN is on its way to an integrated market, but it is not yet there.  The four newer members of ASEAN still have to reach the   0-5 percent tariff level for intra-ASEAN trade – Viet Nam in 2006, Laos and Myanmar in 2008, and Cambodia in 2010.  Tariffs will have to be abolished altogether – in 2010 for the six older members and 2015 for the newer four.  Exclusion lists will have to be scrapped or at least considerably shortened.

                However, market integration, the kind that investors look for, is not just about cutting or removing tariffs on trade.  ASEAN countries have to make sure that non-tariff barriers are removed, too.  ASEAN is pursuing negotiations on the liberalization of trade in services, a process much more complex than the negotiations on trade in goods.  Transport has to be made easier and less expensive.

 Harmonizing Standards and Regulations

            Not least, to integrate the market more fully, product standards need to be harmonized, as do conformity assessment procedures and technical regulations.  ASEAN has recognized the need to conclude mutual recognition arrangements so as to reduce duplication in the testing and certification of products.  The ASEAN cosmetics industry has known the frustration of having products tested more than once as they move from one ASEAN country to another, causing delays, wasting precious time and jacking up costs.

            In December 1998, ASEAN decided to meet this problem head-on by signing the framework agreement on mutual recognition arrangements, or MRA.  The ASEAN Cosmetics Association was the driving force for this.  In July 1997, the ACA officially asked the ASEAN Secretariat and the ASEAN Coordinating Committee on Standards and Quality for help in removing barriers to cosmetics trade, specifically by harmonizing the conformity assessment and technical regulations governing the cosmetics industry in ASEAN.  In July 1998, an ACCSQ working group began the task of harmonizing conformity assessment and technical regulations in the ASEAN cosmetics industry.  The working group has since been institutionalized as the Cosmetics Product Working Group, in which the ACA and the national cosmetics associations, as well as the government regulatory agencies and the ASEAN Secretariat, are represented.

            The ACCSQ has identified five sectors for coverage by mutual recognition arrangements.  Cosmetics is, of course, among the five.  The others are electrical and electronic equipment, telecommunications equipment, pharmaceuticals, and prepared food.

            The ASEAN economic ministers are scheduled to sign the MRA for electrical and electronic equipment at their meeting in April.  Last July, the ASEAN ministers of telecommunications endorsed the MRA for telecommunications equipment and called for its speedy implementation.

             Work in the cosmetics sector is even more comprehensive, as regulators and the industry collaborate 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.

             These documents will serve as the basis for the implementation of the ASEAN Harmonized Cosmetic Regulatory Scheme.  ASEAN is nearing formal agreement on the scheme.  I understand that only one country, for legal reasons, has not endorsed the full text.  My own view of this is that those ASEAN member-countries that are ready to conclude the agreement should sign it; others can accede to it later.

             The harmonized cosmetic regulatory scheme has two parts.  The first 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 part 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.  The directive covers safety requirements, ingredient listings, labeling, product claims, product information, and methods of analysis. 

Contributing to Market Integration

            MRAs, as well as the harmonization of standards and regulations, are a major contribution to the integration of the ASEAN market.  Even if tariffs are done away with, even with the most efficient transportation, even if standards are equivalent throughout ASEAN and regulations similar, 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.  As the cosmetics industry knows only too well, redundant testing and certification substantially increase costs.  Inconsistent regulations and varying standards restrict trade.

            MRAs ensure that regulators in the importing country can rely on the tests conducted and certifications issued in the exporting country with respect to the products’ compliance with safety, health and other requirements.  This facilitates trade considerably and lowers costs.  Because ASEAN MRAs require the conformity-assessment bodies to meet international standards and requirements, their implementation will help the products covered by MRAs to enter international markets.

            Moreover, implementing MRAs and related schemes compel regulators to meet frequently and network effectively.  This helps them to exchange information, obtain inspiration from one another’s best practices, harmonize standards and regulations, and build technical competence.

            None of this can happen without regional cooperation.  And ASEAN’s governments would not have agreed to cooperate to this extent if not for the patient, collaborative work done by some industry sectors in ASEAN.  The ASEAN Cosmetics Association has been at the vanguard of this work, with the Philippine cosmetics industry playing a prominent role.  I look forward to the day when the ACA expands its current membership from the present five – Indonesia, Malaysia, the Philippines, Singapore and Thailand – to ten.  It is a tribute to the vision of the cosmetics industry’s leaders and to the industry’s enlightened self-interest that it has recognized the value of regional cooperation and taken common regional action.

            This should serve as an example and guide for other industry groups.  In an increasingly competitive global economy, in an increasingly globalized economic environment, industries and companies in ASEAN have to cast their eyes outward, toward the region, if not the world.  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.

            The ASEAN cosmetics industry is leading the way.