SCHEME FOR THE ASEAN FREE TRADE AREA

1.

Background

At the Fourth ASEAN Summit in January 1992, the ASEAN Heads of Government agreed to establish an ASEAN Free Trade Area (AFTA) by the
year 2008 to open up their economies in the era of globalization. During the ASEAN Economic Ministers (AEM) Meeting in September 1994, the
target date was advanced to 2003.
A free trade area would allow the companies within the ASEAN region to take advantage of the economies of scale. The main
implementing mechanism of AFTA is the Common Effective Preferential Tariff (CEPT) Scheme.
2.

What is AFTA?

AFTA stands for ASEAN Free Trade Area which involves the removal of obstacles to freer trade among member states. This includes the
abolition of high tariffs or taxes on traded goods and the scrapping of quantitative restrictions (QRs) and other non-tariff barriers (NTBs) that limit
the entry of imports.
There are ten (10) ASEAN member countries. The six original members are Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore,
and Thailand. The other members are Vietnam (1995), Laos and Myanmar (1997), and Cambodia (1999).
3.

What are the objectives of AFTA?

The AFTA program was initiated in 1992 to create an integrated market among ASEANs close to half a billion people making the ASEAN
economies more efficient and competitive, and attract investments into the region.
The ultimate objective of AFTA 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 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 expanding 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 direct foreign investments into the region. This will, in turn,
stimulate the growth of support industries in the region for many direct foreign investments.
4.

What is the CEPT scheme?

The Common Effective Preferential Tariff Scheme, or CEPT, is a cooperative arrangement among ASEAN Member States that will reduce intraregional tariffs and remove non-tariff barriers over a 10-year period commencing January 1, 1993. The goal of the Scheme is to reduce tariffs on all
manufactured goods to 0-5% by the year 2003. This will benefit Philippine exporters to ASEAN. The lower CEPT rates make the countrys products
cheaper in these markets, thus stimulating greater demand. The increase in exports to ASEAN would depend on the price elasticity of demand.
The CEPT Scheme is the main instrument for making ASEAN a free trade area in ten (10) years. This means that ASEAN Member States
shall have common effective tariffs among themselves in AFTA but the level of tariffs vis--vis non-ASEAN countries shall continue to be
determined individually.
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 unprocessed
agricultural products are covered by the CEPT Scheme.
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:

a.

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) 1994.

b.

Temporary Exclusions - Member States which are, in the interim, 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 provisions.

c.

Unprocessed Agricultural Products - These are agricultural products defined as:

agricultural raw materials and unprocessed products covered under Chapters 1 to 24 of the Harmonized System (HS) Code and similar agricultural raw
materials and unprocessed products in other related HS headings; and

products which have undergone simple processing with minimal change in form from the original products.

5.

What is the program of tariff reduction under the CEPT Scheme?

There are two programs of tariff reduction under the CEPT Scheme: the Normal Track Program and the Fast Track Program.
Normal Track
Products with tariff rates above 20% had their rates reduced to 20% by January 1,1998 and subsequently from 20% to 0-5% by January 1,
2003.
Products with tariff rates at or below 20% had their rates reduced to 0-5% by January 1, 2000.
Fast Track
Products with tariff rates above 20% had their rates reduced to 0-5% by January 1, 2000.
Products with tariff rates at or below 20% had their rates reduced to 0-5% by January 1, 1998.
6.

What are the conditions for a product to be eligible for concessions under the CEPT?

There are three (3) conditions, namely:

a.

The product has to be included in the Inclusion Lists of both the exporting and the importing countries and must belong to the same tariff band, i.e.,
above 20% or 20% and below.

b.

It has to have a program of tariff reduction approved by the AFTA Council.

c.

It has to be an ASEAN product, i.e., it has to satisfy the local content requirement of at least 40%.
Products with tariff rates of 0-5% are deemed to have satisfied these conditions under the CEPT Agreement and shall also enjoy the
concessions.
7.

What other measures, apart from tariff reductions, are covered under the CEPT scheme to promote free trade within ASEAN?

Apart from tariff reductions, the CEPT Scheme provides for the elimination of QRs (quotas, licenses, etc.) and Non Tariffs Barriers (NTBs) as well
as exceptions to foreign exchange restrictions on CEPT products.
Member States shall eliminate all QRs on CEPT products upon enjoyment of concessions applicable to these products.
As regards NTBs, 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.
8.

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 GATT 1994.
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 subject of consultations between concerned Member States.
9.
What appeals procedure is available to parties interested in requesting a modification, suspension or withdrawal of CEPT
concessions?
Petitions for modification, suspension or withdrawal of CEPT concessions may be filed by interested parties under Section 402 of the Tariff and
Customs Code, as amended. The Tariff Commission conducts investigations on petitions it receives during the course of which public hearings are
held to afford interested parties reasonable opportunity to present their views. The Commission submits its findings and recommendations to the
National Economic and Development Authority (NEDA) which then schedules these for deliberation by both the Tariff and Related Matters (TRM)
Technical and Cabinet Committees. The final decision is made by the NEDA Board after which the Commission prepares the implementing
Executive Order.
10.

What are Rules of Origin?

Taken as a whole, the Rules of Origin compose the set of criteria used to determine the country or customs territory of origin of a good or
service in international trade. It is a crucial component of any regional trading arrangement and serves to prevent non-members of a free trade area
from taking advantage of different external tariff rates imposed by individual member countries. It is used to determine the eligibility of a product to
receive concessions.
Rules of Origin rest on the concept of "substantial transformation" so that origin is assigned to the country where the last substantial
transformation occurred. Substantial transformation may be defined on the basis of a change in tariff heading, achieving a threshold proportion of
value-added, or on the basis of certain manufacturing processes. In AFTA, the rule of origin is based on value-added with the threshold level set at
40% of the value of the product.
11.

How is the Temporary Exclusion List eliminated?

Products from the Temporary Exclusion List are phased-in into the Inclusion List in five equal installments annually. The first installment was
effected on January 1, 1996 and the last installment was effected on January 1, 2000 and included in E.O. 234.
12.

What tariff reduction schedules will products transferred from the temporary exclusion list have?

a.
Products with tariffs above 20% must have had tariffs of 20% by January 1, 1998. Products above 20% and brought into the Inclusion List
after January 1, 1998 must have a tariff of 20% or less upon transferring. Tariffs should be subsequently reduced to 0-5% by January 1, 2003.
b.
13.

Products with tariff rates of or below 20% must have their tariffs reduced to 0-5% by January 1, 2003.
How will unprocessed agricultural products be phased-in into the CEPT Scheme?

a.
Sensitive List - Products in this category, due to their sensitivity, have a special arrangement or mechanism ( e.g., a longer timeframe of
implementation, final CEPT rate higher than the existing 0-5%). The 9 th AFTA Council Meeting held in Singapore on April 26, 1996 agreed that
products in the Sensitive List would be divided into two sub-categories: sensitive and highly sensitive.
For products in the Sensitive category, the following agreements were reached:

the beginning year for phasing-in was scheduled for January 1, 2001 but not later than January 1, 2003;

the ending year for phasing-in will be January 1, 2010;

tariffs will be at 0-5% by January 1, 2010; and

NTBs will be removed by January 1, 2010.

Products in the Highly Sensitive category refer to rice for Indonesia, Malaysia, and the Philippines. It was agreed that the ending year for the
phasing-in of this product will be 2010. There shall also be a flexibility option for safeguard measures.
b.

Temporary Exclusion List - Products in this list will be phased-in into the Inclusion List in equal installments beginning January 1, 1997 and
ending January 1, 2003. Products transferred by or after 1998 should have tariffs reduced to 20% or below. Products transferred in 2003 should have
tariffs reduced to 0-5%.

c.

Inclusion List - Products in this list are for immediate transfer to the CEPT Scheme. The program of tariff reduction is such that by January 1,
2003, the final CEPT rate is 0-5%.
14.

Can indirect consignments be accepted under the CEPT Scheme?

No. The CEPT concessions are granted only to direct consignments. Direct consignments refer to products that are: (a) transported
without passing through the customs territory of a non-ASEAN country or (b) whose transport through the customs territory of a non-ASEAN
country can be justified for geographical reasons, and has not entered into trade or consumption there, or undergone any operation beyond unloading
or reloading.
15.
How does a firm trading in a CEPT-eligible product apply for a Certificate of Origin Form D to comply with the local content
requirement?
The firm applies in writing to the relevant government authorities in his country requesting 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 applies for a Certificate of
Origin (CO) Form D. The authorities designated to issue the CO (in our case the Bureau of Customs) carry out the proper examination to determine
conformity with the Rules of Origin. The CO is issued at the time of exportation or soon thereafter.
16.

What Executive Orders Implementing the Philippine CEPT Scheme have been issued?
Products with CEPT rates are included in the Inclusion List (IL) being implemented by the Philippines under the following Executive

Orders:
Executive Order
Date Issued
388 December 27, 1996
453 October 31, 1997
487 June 11, 1998
71
January 15, 1999
234 April 27, 2000
254 June 12, 2000
49
November 3, 2001

Executive Order
165January 10, 2003
263December 30, 2003
268January 9, 2004
316May 21, 2004
489January 12, 2006
490January 12, 2006

Date Issued

Article 6 of the Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area
1.

What is Article 6 of the CEPT Agreement?

The ASEAN members signed the Agreement on the CEPT Scheme for the AFTA on January 28, 1992 in Singapore. Article 6 of this Agreement provides for
emergency measures as follows:
Article 6: Emergency Measures
i.

If, as a result of the implementation of this Agreement, import of a particular product eligible under the CEPT Scheme is increasing in such a
manner as to cause or threaten to cause serious injury to sectors producing like or directly competitive products in the importing Member States, the
importing Member States may, to the extent and for such time as may be necessary to prevent or to remedy such injury, suspend preferences
provisionally and without discrimination, subject to Article 6(3) of this Agreement. Such suspension of preferences shall be consistent with the
GATT.

ii.

Without prejudice to existing international obligations, a Member State which finds it necessary to create or intensify quantitative restrictions or
other measures limiting imports with a view to forestalling the threat of or stopping a serious decline of its monetary reserves, shall endeavor to do
so in a manner which safeguards the value of the concessions agreed upon.
iii.
Where emergency measures are taken pursuant to this Article, immediate notice of such action shall be given to the Council referred to
in Article 7 of this Agreement, and such action may be the subject of consultation as provided for in Article 8 of this Agreement.
2.

What are the requirements for suspension of concessions under Article 6?

Four (4) elements must be proven: product comparability, increasing imports (due to unforeseen developments and the grant of
concessions), serious injury or threat thereof, and causal linkage.
Petitioners must submit data/evidence on the above elements.
3.

What constitutes serious injury or threat thereof?

Among the factors to be considered in determining whether injury to the domestic industry is serious are:

decline in sales or prices; downward trends in production, profits, wages, or productivity;

inability to generate capital for modernization or maintain existing levels of expenditures on research and development;

inability of significant number of firms to carry out production at a profit; significant idling of production facilities including the closure of
plants or underutilization of production capacity;

significant unemployment/ underemployment; significant reduction in market share as a proportion of market demand; and

growing inventories of subject article, whether maintained by domestic producers, importers, wholesalers or retailers.
For threat of serious injury, the following factors are considered:

significant increase in imports (evidenced, among others, by the existence of letters of credit, supply/sales contracts, awards of a
tender, irrevocable offers or other similar contracts);

decline in sales, prices or market share and downward trends in production, profits, wages, productivity or employment;

inability to generate capital for modernization or maintain existing levels of expenditures on research and development;

sufficient freely disposable, or an imminent substantial increase in production capacity of foreign exporters including access
conditions they face in third country markets indicating the likelihood of substantially increased exports to the Philippines; and

growing inventories of subject article, whether maintained by domestic producers, importers, wholesalers or retailers.

4.

If the CEPT rate is suspended pursuant to Article 6 of the CEPT Agreement, what rate of duty will apply?
The Most-Favored-Nation (MFN) rate will apply. The preferential rate may however be suspended to the extent as may be necessary to prevent
or to remedy the serious injury.
5.

How long can a CEPT rate be suspended?

The CEPT rate can be suspended only for such period of time as may be necessary to prevent/remedy the serious injury and to facilitate
adjustment.
6.

Is a member country required to provide compensation when it suspends the application of a CEPT rate?

Yes, a member country will have to provide compensation as may be mutually agreed upon with the affected ASEAN member countries.
7.

Can other ASEAN members retaliate if the Philippines is found not to have complied with the requirements of Article 6?

The Interpretative Notes of Article 6 require that the suspension of preferences be consistent with Article XIX (Emergency Action on Imports of
Particular Products) of the GATT. Article XIX allows a country affected by the emergency action to withdraw substantially equivalent concessions.
Article 9 of the Protocol on Dispute Settlement Mechanism allows any party invoking the dispute settlement mechanism to suspend the
application of the concessions of the member state concerned (i.e., the Philippines) or any other obligation under the AFTA-CEPT Agreement, if no
satisfactory compensation has been agreed upon.
8.

Has Article 6 been invoked previously by the Philippines?

No. However, under the erstwhile Preferential Trading Arrangements (PTA) Scheme, the Philippines suspended its tariff concession
(Margin of Preference or MOP) on refractory bricks.

9.

Have other ASEAN members invoked Article 6?

No.

10.

What is the process for suspension of CEPT rate?

The Tariff Commission conducts a public consultation on petitions for suspension of tariff concessions under Article 6. The Commission then submits
its report of findings and recommendations to the Tariff and Related Matters Committee (TRM). The final decision is taken by the NEDA Board
after which the Commission prepares the implementing Executive Order.
As required by the Agreement, the Philippines must notify the AFTA Council of any emergency measures it undertakes under Article 6.

11.

What is the timetable of the Commissions Article 6 investigation?

Taking into account the emergency nature of an Article 6 petition, the Commission shall complete its investigation and submit its report of
findings and recommendation to the TRM Committee within sixty (60) days from receipt of a properly documented petition.
Commission Order No. 02-01 provides the rules and regulations governing the conduct of the Commissions formal investigation on the
withdrawal and/or suspension of concessions under Section 402 of the Tariff and Customs Code.
12.

What is ASEAN Charter?

ASEAN Charter is one of the most important documents that create a legal and institutional framework for cooperation within the region
and towards the formation of an ASEAN community. It also laid the foundation for ASEAN to restructure is existing mechanisms and improve its
decision-making process to enhance efficiency and ensure prompt implementation of all ASEAN agreements and decisions. The Leaders of the 10member Association of Southeast Asian Nations (ASEAN) signed the document on 20 November 2007 at the 13 th ASEAN Summit held in
Singapore. The ASEAN Charter focused at committing the ASEAN to the ideals of democracy, a single market and the protection of human rights.
13.

What are the main declarations of the ASEAN Charter?

To maintain and enhance peace and security in the region, and to preserve Southeast Asia as a nuclear weapon-free zone.

To create a single market and production base, which is highly competitive and economically integrated and has free flow of goods,
services and investment, with facilitated movement of labour and freer flow of capital.

To strengthen democracy, enhance good governance and the rule of law, and to promote human rights. ASEAN shall establish a
human rights body, with terms to be decided by foreign ministers.

To respect the independence, sovereignty, territorial integrity and national identity of all ASEAN member states.


The renunciation of aggression and threat or use of force in any matter inconsistent with international law, and reliance on peaceful
settlements of disputes.

Non-interference in the internal affairs of member states.

To alleviate poverty and narrow the development gap within ASEAN.

To promote sustainable development to protect the environment, natural resources and cultural heritage.

To develop human resources and well-being through co-operation on education, equitable access to development opportunities, social
welfare and justice.

To promote an ASEAN identity through awareness of culture.

Protocol on the Implementation of the CEPT Scheme Temporary Exclusion List

1.

What is the Protocol on the CEPT-TEL?

The Protocol on the Implementation of the CEPT Scheme Temporary Exclusion List signed on November 23, 2000 is an exception window of
the AFTA-CEPT Scheme which allows limited flexibility on the implementation of the CEPT Scheme Temporary Exclusion List (TEL).
2.

What is the objective and scope of the Protocol?

The objective of this Protocol is to allow a Member State to temporarily delay the transfer of a product from its TEL into the Inclusion List
(IL), or to temporarily suspend its concession on a product already transferred into the IL, if such a transfer or concession would cause or have
caused real problems, by reasons which are not covered by Article 6 (Emergency Measures) of the Agreement.
The provisions of this Protocol shall apply only to the last tranche of TEL manufactured products which were in the TEL as of December
31, 1999 or the relevant dates applicable to Cambodia, Lao PDR, Myanmar and Vietam.
3.

How does a Member State invoke the Protocol?

A member State which seeks to invoke the provisions of the Protocol shall make a written submission (herein referred to as the Submission) to
the ASEAN Free Trade Area (AFTA) Council. A copy of the Submission shall be extended by the ASEAN Secretariat to the Senior Economic
Officials Meeting (SEOM) and to the Coordinating Committee on the Implementation of the CEPT Scheme for AFTA.
4.

What is the right of affected ASEAN Member State/s?

Member States having principal or substantial supplying interest in the particular product shall submit a written request for consultation to discuss
provision for compensatory adjustment measures which may take any form. Member States shall ensure a general level of reciprocal and mutually
advantageous concessions not less favorable to trade than that provided for and prevailing under Agreement prior to such discussions.
5.

Is a Member State required to pay compensations?

An ASEAN Member State shall provide compensatory adjustment as agreed upon and shall be extended on the most favored nation (MFN) basis
to all Member States.
6.

If no agreement is reached, can a Member State retaliate?

If no agreement is reached on the Submission at the latest by 180 days of the date of receipt of the Submission by the AFTA Council and
the applicant Member State nevertheless insists on proceeding with the delay of the transfer or the suspension of the concession, Member States with
principal or substantial supplying interest and which have entered into separate discussions with the applicant Member State shall be free, not later
than 90 days after such action is taken, to withdraw substantially equivalent concessions from the applicant Member State, upon the expiration of 30
days from the date on which written notice of the intention to make such withdrawal is received by all Member States.

7.

Has the Philippines invoked the Protocol?

Yes, the Philippines in December 2002 sent its notification to suspend the tariff concessions on petrochemical products already transferred into the
CEPT IL to the AFTA Council. The petrochemical products composed of polymers of polyethylene, propylene, polyvinyl chloride, polystyrene;
PVC floor coverings; sheets, plates, film, foil and strip of PVC; twine, cordage, rope, and cables of polyethylene and polypropylene.
8.

What EO implemented the suspension of tariff concessions on petrochemical products?

Executive Order No. 161 (issued on January 9, 2003) implemented the suspension of the tariff reduction schedule on certain plastic
products under the Protocol Regarding the Implementation of the CEPT Scheme Temporary Exclusion List.
ASEAN Priority Integration Program under the ASEAN-CEPT Scheme
1.

Background

As declared in the Bali Concord II in 2003, the formation of an ASEAN Economic Community (AEC) by 2020 is a large step in the evolution of
ASEAN. The AEC not only signifies the regions commitment toward closer cohesion and economic integration, but also sets a concrete goal to
achieve an integrated (single) market and production base for the region. This commitment was further reaffirmed at the 10th ASEAN Summit in
November 2004 when the Leaders identified the eleven (11) Priority Sectors that would accelerate the regions economic integration by 2010 under
the Framework Agreement for the Integration of Priority Sectors.
2.

What are the priority sectors under the ASEAN Priority Integration Program?

The 11 priority sectors and the corresponding country coordinators (selected on the basis of comparative advantage, skills and cost
competitiveness, and value-added contribution to ASEANs economy) are:
Wood-based & Automotive
Rubber-based & Textiles
Agro-based & Fisheries
Electronics
e-ASEAN & Healthcare
Airlines & Tourism
3.

Indonesia
Malaysia
Myanmar
Philippines
Singapore
Thailand

What are the measures drawn-up to realize the integration of the eleven (11) sectors?

The basis for economic integration for each of the priority sectors was prepared with active involvement of the private sector. The roadmaps aim to:
(i)

enhance the competitiveness of ASEAN;

(ii)

strengthen regional integration efforts through liberalization, facilitation and promotion measures; and

(iii)

promote private sector participation. This includes specific measures that are of direct relevance to each sector, as well as common measures that
cut across all priority integration sectors to be implemented with timelines from now on to the year 2010. Amongst these measures are:

the elimination of all tariffs in relation to products (other than those in the sensitive, highly sensitive and general exception lists) covered by the
priority sectors by 2007 for ASEAN 6 and 2012 for the CLMV; or 3 years earlier than the original target under the ASEAN Free Trade Area (AFTA).
Under the liberalization plan, each country has a quota to exclude no more than 15 percent of the total tariff lines in the priority sectors.

the establishment of a definitive work program for the elimination of non-tariff measures and the standardization of ROO;

the harmonization of customs declaration forms and the development of the Single Window approach for customs;

the harmonization of standards;

acceleration of trade in services liberalization; and

progressive elimination of restrictive investment measures by 2010 for

ASEAN 6, 2013 for Viet Nam and 2015 for Cambodia, Lao PDR and Myanmar.
As outlined in the Roadmap, the measures to be pursued are grouped into two broad categories, namely:
(a)

(b)

Common or horizontal measures which cut across all priority sectors.

Under the existing Roadmap there are 15 categories: (i) Tariff Elimination; (ii) Non-Tariff Measures (NTMs); (iii) Rules of Origin (ROO); (iv)
Customs procedures; (v) Standard & Conformance; (vi) Logistic Services; (vii) Outsourcing and Industrial Complementation; (viii) ASEAN
Integration System of Preferences; (ix) Investments; (x) Trade and Investment Promotion; (xi) Intra-ASEAN Trade and Investment Statistics; (xii)
Intellectual Property Rights; (xiii) Movement of Business Persons, Skilled Labor, Talents and Professionals; (xiv) Facilitation of Travel in ASEAN;
and (xv) Human Resource Development.
Specific measures that are of direct relevance to each sector. The integration approaches are premised on (i) combining the economic strengths of
ASEAN member countries for regional advantage; (ii) facilitate and promote intra-ASEAN trade and investments; (iii) improve the condition to
attract and retain manufacturing and other economic activities within the region; (iv) promote outsourcing program within ASEAN; and (v)
promote the development of Made in ASEAN products and services.
4.

Implementing Bodies

To ensure the implementation of the Roadmap in an effective and sustainable manner, implementing bodies have been assigned to look
after each of the respective measures. As indicated by the Vientiane Action Programme, the implementing bodies should streamline the decisionmaking process and ensure effective implementation of all ASEAN economic initiatives.

Senior
Economic
Officials
Meeting
Implementation by various ASEAN Working Groups

(SEOM)

as

overall

in

charge

Examples

CCCA: Coordinating Committee on the Implementation of the CEPT-AFTA

CCS: Coordinating Committee on Services

CCI: Coordinating Committee on Investments

ACCSQ: ASEAN Consultative Committee on Standards and Quality

TELSOM: Telecommunications Senior Officials Meeting

5.

What EO implemented the Philippine commitment under the Integration of the Priority Sectors?

EO 417 was issued on April 23, 2007 to implement the Philippine commitments. This covers the first and second phases of tariff
elimination under the priority integration.

The ASEAN Integration System of Preferences (AISP)

1.

Background

At the Fourth ASEAN Informal Summit held on November 22-25, 2000 in Singapore, the ASEAN Leaders agreed to launch an Initiative for ASEAN
Integration (IAI), which gives direction to and sharpens the focus of collective efforts in ASEAN to narrow the development gap within ASEAN as
well as between ASEAN and other parts of the world.

In pursuing the decision to launch the IAI, the Thirty Fourth Meeting of ASEAN Ministerial Meeting (AMM) on July 23-24, 2001 in
Hanoi, adopted the Hanoi Declaration on Narrowing the Development Gap for Closer ASEAN Integration. At the 35th AMM held on July 29,
2002 in Brunei Darussalam, Foreign Ministers endorsed the IAI Work Plan and the list of programs and project proposals. The Ministers agreed to
devote special efforts and resources to promote effective cooperation and mutual assistance to narrow the development gap among ASEAN Member
Countries for the sake of dynamic and sustained growth of the region and prosperity of the people. ASEAN Leaders approved the IAI Work Plan at
their Summit Meeting on November 4, 2002 at Phnom Penh, Cambodia.
Within this context, the work plan will assist new member countries to reduce the development gaps among ASEAN Member Countries
and expedite greater regional economic integration, promote equitable economic development and help alleviate poverty in Cambodia, Laos,
Myanmar and Viet Nam (CLMV).
ASEAN has adopted the ASEAN Integration System of Preferences (AISP) scheme whereby preferential tariffs are offered to the newer
members by the older members on voluntary and bilateral basis starting on January 1, 2002. AISP is implemented based on products proposed by the
CLMV Countries.
2.

Has the Philippines granted tariff preferences under the AISP?

The Philippines granted its first package of tariff preferences under the AISP to Myanmar and Vietnam covering certain agricultural,
industrial, pharmaceutical and electrical goods under Executive Order No. 166 issued in January 2003. The second package was extended to CLMV
under Executive Order 448 in 2005, comprising certain plant products and wood sawn timbers.
ASEAN Free Trade Area (AFTA)[1] is a trade bloc agreement by the Association of Southeast Asian Nations supporting local manufacturing in all
ASEAN countries.
The AFTA agreement was signed on 28 January 1992 in Singapore. When the AFTA agreement was originally signed, ASEAN had six members,
namely, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia in
1999. AFTA now comprises ten countries of ASEAN. All the four latecomers were required to sign the AFTA agreement in order to join ASEAN, but
were given longer time frames in which to meet AFTA's tariff reduction obligations.
The primary goals of AFTA seek to:

Increase ASEAN's competitive edge as a production base in the world market through the elimination, within ASEAN, of tariffs
and non-tariff barriers; and
Attract more foreign direct investment to ASEAN.
The primary mechanism for achieving the goals given above is the Common Effective Preferential Tariff (CEPT) scheme, which established a
schedule for phased initiated in 1992 with the self-described goal to increase the "regions competitive advantage as a production base geared for the
world market".
History
A proposal to set up a Free Trade Area in Asean was first mooted by the Thai Prime Minister Anand Panyarachun, which was agreed upon with
amendments during the ASEAN Seniors Economic Official Meeting (AEM) in Kuala Lumpur. In January 1992, the ASEAN members signed the
Singapore Declaration at the heart of which was the creation of AFTA in 15 years. This is a comprehensive program of tariff reduction in the region,
which is to be carried out in phases through the year 2008. This deadline was subsequently moved forward and AFTA became fully operational on 1
January 2003.
Over the course of several years, the initial program of tariff reductions was broadened and accelerated and other "AFTA Plus" activities were
initiated. This includes efforts to eliminate non-tariff barriers, harmonisation of customs nomenclature, valuation, and procedures and development of
common product certification standards.
[edit] The Common Effective Preferential Tariff (CEPT) scheme
Unlike the EU, AFTA does not apply a common external tariff on imported goods. Each ASEAN member may impose tariffs on goods entering from
outside ASEAN based on its national schedules. However, for goods originating within ASEAN, ASEAN members are to apply a tariff rate of 0 to 5

percent (the more recent members of Cambodia, Laos, Myanmar and Vietnam, also known as CMLV countries, were given additional time to
implement the reduced tariff rates). This is known as the Common Effective Preferential Tariff (CEPT) scheme.
ASEAN members have the option of excluding products from the CEPT in three cases: 1.) Temporary exclusions; 2.) Sensitive agricultural products;
3.) General exceptions. Temporary exclusions refer to products for which tariffs will ultimately be lowered to 0-5%, but which are being protected
temporarily by a delay in tariff reductions.
Sensitive agricultural products include commodities such as rice. ASEAN members have until 2010 to reduce the tariff levels to 0-5%.
General exceptions refer to products which an ASEAN member deems necessary for the protection of national security, public morals, the protection
of human, animal or plant life and health, and protection of articles of artistic, historic, or archaeological value. ASEAN members have agreed to
enact zero tariff rates on virtually all imports by 2010 for the original signatories, and 2015 for the CMLV countries.
[edit] Rule of Origin
The CEPT only applies to goods originating within ASEAN. The general rule is that local ASEAN content must be at least 40% of the FOB value of
the good. The local ASEAN content can be cumulative, that is, the value of inputs from various ASEAN members can be combined to meet the 40%
requirement. The following formula is applied:
Raw material cost + Direct labor cost + Direct overhead cost + Profit + Inland transport cost x 100% FOB value
However, for certain products, special rules apply:

Change in Chapter Rule for Wheat Flour;

Change of Tariff Sub-Heading for Wood-Based Products;

Change in Tariff Classification for Certain Aluminum and Articles thereof.

The exporter must obtain a Form D certification from its national government attesting that the good has met the 40% requirement. The Form D
must presented to the customs authority of the importing government to qualify for the CEPT rate. Difficulties have sometimes arisen regarding the
evidentiary proof to support the claim, as well how ASEAN national customs authorities can verify Form D submissions. These difficulties arise
because each ASEAN national customs authority interprets and implements the Form D requirements without much coordination.
Administration
Administration of AFTA is handled by the national customs and trade authorities in each ASEAN member. The ASEAN Secretariat has authority to
monitor and ensure compliance with AFTA measures, but has no legal authority to enforce compliance. This has led to inconsistent rulings by
ASEAN national authorities. The ASEAN Charter is intended to bolster the ASEAN Secretariats ability to ensure consistent application of AFTA
measures.
ASEAN national authorities have also been traditionally reluctant to share or cede sovereignty to authorities from other ASEAN members (although
ASEAN trade ministries routinely make cross-border visits to conduct on-site inspections in anti-dumping investigations). Unlike the EU or NAFTA,
joint teams to ensure compliance and investigate non-compliance have not been widely used. Instead, ASEAN national authorities must rely on the
review and analysis of other ASEAN national authorities to determine if AFTA measures such as rule of origin are being followed. Disagreements
may result between the national authorities. Again, the ASEAN Secretariat may help mediate a dispute but has no legal authority to resolve it.
ASEAN has attempted to improve customs coordination through the implementation of the ASEAN Single Window project. The ASEAN Single
Window would allow importers to submit all information related to the transaction to be entered electronically once. This information would then be
shared with all other ASEAN national customs authorities.
[edit] Dispute resolution
Although these ASEAN national customs and trade authorities coordinate among themselves, disputes can arise. The ASEAN Secretariat has no legal
authority to resolve such disputes, so disputes are resolved bilaterally through informal means or through dispute resolution.

An ASEAN Protocol on Enhanced Dispute Settlement Mechanism governs formal dispute resolution in AFTA and other aspects of ASEAN. ASEAN
members may seek mediation and good offices consultations. If these efforts are ineffective, they may ask SEOM to establish panel of independent
arbitrators to review the dispute. Panel decisions can be appealed to an appellate body formed by the ASEAN Economic Community Council.
The Protocol has almost never been invoked because of the role of SEOM in the dispute resolution process. SEOM decisions require consensus
among all ASEAN members, and since both the aggrieved party and the alleged transgressor are both participating in SEOM, such consensus cannot
be achieved. This discourages ASEAN members from invoking the Protocol, and often they seek dispute resolution in other fora such as the WTO or
even the International Court of Justice. This can also be frustrating for companies affected by an AFTA dispute, as they have no rights to invoke
dispute resolution yet their home ASEAN government may not be willing to invoke the Protocol. The ASEAN Secretary General has listed dispute
resolution as requiring necessary reform for proper administration of AFTA and the AEC.
[edit] Further trade facilitation efforts
Efforts to close the development gap and expand trade among members of ASEAN are key points of policy discussion. According to a 2008 research
brief published by the World Bank as part of its Trade Costs and Facilitation Project, [2] ASEAN members have the potential to reap significant
benefits from investments in further trade facilitation reform, due to the comprehensive tariff reform already realised through the ASEAN Free Trade
Agreement.
This new analysis suggests examining two key areas, among others: port facilities and competitiveness in the Internet services sector. Reform in these
areas, the report states, could expand ASEAN trade by up to 7.5 percent ($22 billion) and 5.7 percent ($17 billion), respectively. By contrast, cutting
applied tariffs in all ASEAN members to the regional average in Southeast Asia would increase intra-regional trade by about 2 percent ($6.3 billion).
[3]

[edit] Membership
Countries that agree to eliminate tariffs among themselves:

Brunei
Indonesia

Malaysia

Philippines

Singapore

Thailand

Myanmar

Cambodia

Laos

Vietnam
Regular Observers

Papua New Guinea

Timor-Leste
The most recent ASEAN meeting was observed also by :

China
Japan

South Korea

India

Australia

New Zealand
[edit] ASEAN Plus Three
See also: Asian Monetary Unit

Members of the ASEAN Plus Three

ASEAN Plus Three (APT) is a forum that functions as a coordinator of cooperation between the Association of Southeast Asian Nations and the three
East Asian nations of China, Japan, and South Korea.
The first leaders' meeting was held in 1997 and the group's significance and importance was strengthened by the Asian Financial Crisis. The grouping
was institutionalised by 1999.[4]
ASEAN Plus Three, in establishing the Chiang Mai Initiative, has been credited as forming the basis for financial stability in Asia, [5] the lack of such
stability being a contributing factor to the Asian Financial Crisis. The Asian Currency Unit (ACU) is a proposed weighted index of currencies for
ASEAN+3. The ACU was inspired by the now defunct European Currency Unit, replaced by the Euro. The Asian Currency Unit's purpose is to help
stabilize the region's financial markets. The ACU as it is proposed is a currency basket and not a real currency, i.e., a weighted index of East Asian
currencies that will function as a benchmark for regional currency movements. [6][7]
The Asian Development Bank is currently reviewing different options concerning the technical aspects related to the ACU calculation, including the
nature of the basket, the choice of fixed weights vs. fixed units, the selection of currencies to be included in the basket, the choice of weights, the
criteria for their periodical revision, and other aspects as well. The Asian Development Bank was to announce the details of the ACU in March 2006
or later.[8] However external pressures delayed this announcement although the concept was still being studied in detail. [9] A panel discussion in
February 2007 cited technical and political obstacles as having prevented the project from advancing. [10] The unit, limited to ASEAN+3, was said to
be still moving forward by mid-July 2007.[11]
[edit] Related free trade areas

ASEAN Australia New Zealand Free Trade Area (AANZFTA) is a free trade area between ASEAN and ANZCERTA, signed
on 27 February 2009[12] and coming into effect on 1 January 2010.[13] Details of the AANZFTA agreement are available online. [14]
ASEANChina Free Trade Area (ACFTA), in effect as of 1 January 2010[15]

ASEANIndia Free Trade Area (AIFTA), in effect as of 1 January 2010[15]

ASEANJapan Comprehensive Economic Partnership (AJCEP)

ASEANKorea Free Trade Area (AKFTA), in effect as of 1 January 2010[15]

Comprehensive Economic Partnership for East Asia

[edit] References
1.
2.
3.

^ AFTA & FTAs (ASEAN Secretariat)

^ World Bank
^ "Deeper Integration in ASEAN: Why Transport and Technology Matter for Trade," John S. Wilson & Benjamin
Taylor; Trade Facilitation Reform Issue Brief, The World Bank. 2008.

4.

^ ASEAN Plus Three Cooperation

5.

^ Chiang Mai Initiative as the Foundation of Financial Stability in East Asia

6.

^ A news report of the ACU (Chinese)

7.

^ A paper analysing a broader basket of currencies

8.

^ Interview with Asian Development Bank representative 24 February 2006

9.

^ ADB website: Boost for new monetary scheme - ASEAN+3 finance ministers to back Asian Currency Unit plan

10.

^ The Japan Times - Japan, South Korea can pull Asia together

11.

^ The Inquirer (Philippines) - Asian currency unit shaping up

12.

^ Joint Media Statement on the Signing of the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade
Area, Thailand, 27 February 2009

13.

^ ASEAN, Australia and New Zealand Leaders Statement: Entry into Force of the Agreement Establishing the
ASEAN-Australia-New Zealand Free Trade Area 25 October 2009, Cha am Hua Hin, Thailand

14.
15.

^ Guide to the agreement establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA)
^ a b c Pushpanathan, Sundram (22 December 2009). "ASEAN Charter: One year and going strong". The Jakarta Post.
http://www.thejakartapost.com/news/2009/12/22/asean-charter-one-year-and-going-strong.html. Retrieved 1 January 2010.

Agreement On The Common Effective Preferential Tariff (CEPT) Scheme For The ASEAN Free Trade Area
Singapore, 28 January 1992

The Governments of Brunei Darussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of
Singapore and the Kingdom of Thailand, Member States of the Association of South East Asian Nations (ASEAN):
MINDFUL of the Declaration of ASEAN Concord signed in Bali, Indonesia on 24 February 1976 which provides that Member
States shall cooperate in the field of trade in order to promote development and growth of now production and trade;
RECALLING that the ASEAN Heads of Government, at their Third Summit Meeting held in Manila on 13-15 December 1987,
declared that Member States shall strengthen intra-ASEAN economic cooperation to maximise the realisation of the region's potential in trade and
development;
NOTING that the Agreement on ASEAN Preferential Trading Arrangements (PTA) signed in Manila on 24 February 1977
provides for - the adoption of various instruments on trade liberalisation on a preferential basis;
ADHERING to the principles, concepts and ideals of the Framework Agreement on Enhancing ASEAN Economic
Cooperation signed in Singapore on 28 January 1992;
CONVINCED that preferential trading arrangements among ASEAN Member States will act as a stimulus to the strengthening
of national and ASEAN Economic resilience, and the development of the national economies of Member States by expanding investment and
production opportunities, trade, and foreign exchange earnings;
DETERMINED to further cooperate in the economic growth of the region by accelerating the liberalisation of intra-ASEAN
trade and investment with the objective of creating the ASEAN Free Trade Area using the Common Effective Preferential Tariff (CEPT) Scheme;
DESIRING to effect improvements on the ASEAN PTA in consonance with ASEAN's international commitments;
HAVE AGREED AS FOLLOWS:
ARTICLE I

Definitions
For the purposes of this Agreement :
"CEPT" means the Common Effective Preferential Tariff, and it is an agreed effective tariff, preferential to ASEAN, to be
applied to goods originating from ASEAN Member States, and which have been identified for inclusion in the CEPT Scheme in accordance with
Articles 2 (5) and 3.
Non-Tariff Barriers" mean measures other than tariffs which effectively prohibit or restrict import or export of products
within Member States.
"Quantitative restrictions" mean prohibitions or restrictions on trade with other Member States, whether made effective
through quotas, licences or other measures with equivalent effect, including administrative measures and requirements which restrict trade.
"Foreign exchange restrictions" mean measures taken by Member States in the form of restrictions and other administrative
procedures in foreign exchange which have the effect of restricting trade.
5. "PTA" means ASEAN Preferential Trading Arrangements stipulated in the Agreement on ASEAN Preferential Trading Arrangements , signed
in Manila on 24 February 1977, and in the Protocol on Improvements on Extension of Tariff Preferences under the ASEAN Preferential Trading
Arrangements (PTA), signed in Manila on 15 December 1987.
"Exclusion List" means a list containing products that are excluded from the extension of tariff preferences under the CEPT
Scheme.
7.

"Agricultural products" mean :

agricultural raw materials/unprocessed products covered under Chapters 1-24 of the Harmonised System (HS), and similar agricultural raw
materials/unprocessed products in other related HS Headings; and
products which have undergone simple. processing with minimal change in form from the original products.
ARTICLE 2
General Provisions
All Member States shall participate in the CEPT Scheme.
Identification of products to be included in the CEPT Scheme shall be on a sectoral basis, i.e., at HS 6-digit level.
Exclusions at the HS 8/9 digit level for specific products are permitted for those Member States, which are temporarily not
ready to include such products in the CEPT Scheme. For specific products, which are sensitive to a Member State. pursuant to Article 1 (3) of the
Framework Agreement on Enhancing ASEAN Economic Cooperation, a Member State may exclude products from the CEPT Scheme, subject to a
waiver of any concession herein provided for such products. A review of this Agreement shall be carried out in the eighth year to decide on the
final Exclusion List or any amendment to this Agreement.
A product shall be deemed to be originating from ASEAN Member States, if at least 40 % of its content originates from any
Member State.
5.
All manufactured products, including capital goods, processed agricultural products and those products falling outside the definition of
agricultural products, as set out in this Agreement, shall be in the CEPT Scheme. These products shall automatically be subject to the schedule of
tariff reduction, as set out in Article 4 of this Agreement. In respect of PTA items, the schedule of tariff reduction provided for in Article 4 of this
Agreement shall be applied, taking into account the tariff rate after the application of the existing margin of preference (MOP) as at 31 December

All products under the PTA which are not transferred to the CEPT Scheme shall continue to enjoy the MOP existing as at 31

December 1992.
Member States, whose tariffs for the agreed products are reduced from 20% and below to O%-5%, even though granted on an
MFN basis, shall still enjoy concessions, Member States with tariff rates at MFN rates of O%-50/o shall be deemed to have satisfied the
obligations under this Agreement and shall also enjoy the concessions.
ARTICLE 3
Product Coverage
This Agreement shall apply to all manufactured products, including capital goods, processed agricultural products, and those products failing
outside the definition of agricultural products as set out in this Agreement. Agricultural products shall be excluded from the CEPT Scheme.
ARTICLE 4
Schedule of Tariff Reduction
Member States agree to the following schedule of effective preferential tariff reductions:
The reduction from existing tariff rates to 20 % shall be done within a time frame of 5 years to 8 years, from 1 January 1993, subject to a
programme of reduction to be decided by each Member State, which shall be announced at the start of the programme. Member States are
encouraged to adopt an annual rate of reduction, which shall be (X-20)% / 5 or 8, where X equals the existing tariff rates of individual Member

The subsequent reduction of tariff rates from 20% or below shall be done within a time frame of 7 years. The rate of reduction shall be at a
minimum of 5% quantum per reduction. A programme of reduction to be decided by each Member State shall be announced at the start of the
programme.
For products with existing tariff rates of 200/o or below as at 1 January 1993, Member States shall decide upon a programme of tariff reductions,
and announce at the start, the schedule of tariff reductions. Two or more Member States may enter into arrangements for tariff reduction to 0%-5%
on specific products at an accelerated pace to be announced at the start of the programme.
Subject to Articles 4 (1) (b) and 4 (1) (c) of this Agreement, products which reach, or are at tariff rates of 20% or below, shall
automatically enjoy the concessions
The above schedules of tariff reduction shall not prevent Member States from immediately reducing their tariffs to 0%-5% or
following an accelerated schedule of tariff reduction.
ARTICLE 5
Other Provisions
Quantitative Restrictions and Non-Tariff Barriers
Member States shall eliminate all quantitative restrictions in respect of products under the CEPT Scheme upon enjoyment of
the concessions applicable to those products.
Member States shall eliminate other non-tariff barriers on a gradual basis within a period of five years after the enjoyment of
concessions applicable to those products.
Foreign Exchange Restrictions
Member States shall make exceptions to their foreign exchange restrictions relating to payments for the products under the CEPT
Scheme, as well as repatriation of such payments without prejudice to their rights under Article XVIII of the General Agreement on Tariff and
Trade (GATT) and relevant provisions of the Articles of Agreement of the International Monetary Fund (IMF).
Other Areas of Cooperation

Member States shall explore further measures on border and non-border areas of cooperation to supplement and complement the
liberalisation of trade. These may include, among others, the harmonisation 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.
D. Maintenance of Concessions
Member States shall not nullify or impair any of the concessions as agreed upon through the application of methods of customs valuation,
any new charges or measures restricting trade, except in cases provided for in this Agreement.
ARTICLE 6
Emergency Measures
If, as a result of the implementation of this Agreement, import of a particular product eligible under the CEPT Scheme is
increasing in such a manner as to cause or threaten to cause serious injury to sectors producing like or directly competitive products in the
importing Member States, the importing Member States may, to the extent and for such time as may be necessary to prevent or to remedy such
injury, suspend preferences provisionally and without discrimination, subject to Article 6 (3) of this Agreement. Such suspension of preferences
shall be consistent with the GATT.
Without prejudice to existing international obligations, a Member State, which finds it necessary to create or intensify
quantitative restrictions or other measures limiting imports with a view to forestalling the threat of or stopping a serious decline of its monetary
reserves, shall endeavour to do so in a manner, which safeguards the value of the concessions agreed upon.
Where emergency measures are taken pursuant to this Article, immediate notice of such action shall be given to the Council
referred to in Article 7 of this Agreement, and such action may be the subject of consultation as provided for in Article 8 of this Agreement.
ARTICLE 7
Institutional Arrangements
The ASEAN Economic Ministers (AEM) shall, for the purposes of this Agreement, establish a ministerial-level Council
comprising one nominee from each Member State and the Secretary-General of the ASEAN Secretariat. The ASEAN Secretariat shall provide the
support to the ministerial-level Council for supervising, coordinating and reviewing the implementation of this Agreement, and assisting the AEM
in all matters relating thereto. In the performance of its functions, the ministerial-level Council shall also be supported by the Senior Economic
Officials' Meeting (SEOM).
Member States which enter into bilateral arrangements on tariff reductions pursuant to Article 4 of this Agreement shall notify
all other Member States and the ASEAN Secretariat of such arrangements.
The ASEAN Secretariat shall monitor and report to the SEOM on the implementation of the Agreement pursuant to the Article
III (2) (8) of the Agreement on the Establishment of the ASEAN Secretariat. Member States shall cooperate with the ASEAN Secretariat in the
performance of its duties.
ARTICLE 8
Consultations
Member States shall accord adequate opportunity for consultations regarding any representations made by other Member
States with respect to any matter affecting the implementation of this Agreement. The Council referred to in Article 7 of this Agreement, may seek
guidance from the AEM in respect of any matter for which it has not been possible to find a satisfactory solution during previous consultations.
Member States, which consider that any other Member State has not carried out its obligations under this Agreement, resulting
in the nullifications or impairment of any benefit accruing to them, may, with a view to achieving satisfactory adjustment of the matter, make
representations or proposal to the other Member States concerned, which shall give due consideration to the representations or proposal made to it.
Any differences between the Member States concerning the interpretation or application of this Agreement shall, as far as
possible, be settled amicably between the parties. If such differences cannot be settled amicably, it shall be submitted to the Council referred to in

Article 7 of this Agreement, and if necessary, to the AEM.

ARTICLE 9
General Exceptions
Nothing in this Agreement shall prevent any Member State from taking action and adopting measures, 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 and archaeological value.
ARTICLE 10
Final Provisions
The respective Governments of Member States hall undertake the appropriate measures to fulfil the greed obligations arising
from this Agreement.
Any amendment to this Agreement shall be made by consensus and shall become effective upon acceptance by all Member

This Agreement shall be effective upon signing

This Agreement shall be deposited with the Secretary-General of the ASEAN Secretariat, who shall likewise promptly furnish
a certified copy thereof o each Member State.
No reservation shall be made with respect to any of the provisions of this Agreement.
In witness whereof, the undersigned, being duly authorised thereto by their respective Governments, have signed this
Agreement on Common Effective Preferential Tariff (CEPT) Scheme for the Free Trade Area (AFTA).
Done at Singapore, this 28th day of January, 1992 in a single copy in the English Language.
For the Government of Brunei Darussalam :
ABDUL
Minister of Industry and Primary Resources
For the Government of the Republic of Indonesia :

DR ARIFIN M SIREGAR
Minister of Trade
For the Government of Malaysia:

RAFIDAH AZIZ
Minister of International Trade and Industry
For the Government of the Republic of the Philippines :

RAHMAN

TAIB

PETER D GARRUCHO JR
Secretary of Trade and Industry
For the Government of the Republic of Singapore :

LEE HSIEN LOONG

Deputy Prime Minister and Minister for Trade and Industry
For the Government of the Kingdom of Thailand :

AMARET SILA-ON
Minister of Commerce

Common Effective Preferential Tariff (CEPT)

The Common Effective Preferential Tariff (CEPT) scheme is a co-operation among ASEAN countries to reduce intra-regional tariffs and eliminate
non-tariff barriers for a period of ten years effective January 1st 1993.

A tariff is a tax levied on imports or exports. The word is derived from the Arabic word tarf, meaning 'fees to be paid.'
A capital good, or simply capital in economics, is a manufactured means of production.[1] Capital goods are acquired by a society by saving wealth
which can be invested in the means of production.
Individuals, organizations and governments use capital goods in the production of other goods or commodities. Capital goods include factories,
machinery, tools, equipment, and various buildings which are used to produce other products for consumption. Capital goods, then, are products
which are not produced for immediate consumption; rather, they are objects that are used to produce other goods and services. These types of goods
are important economic factors because they are key to developing a positive return from manufacturing other products and commodities.
Manufacturing companies also use capital goods. Capital goods help their company make functional goods to sell individuals valuable services. As a
result, capital goods are sometimes referred to as producers goods or means of production. An important distinction should also be made between
capital goods and consumer goods, which are products directly purchased by consumers for personal or household use.
For example, cars are generally considered consumer goods because they are usually bought by an individual for personal use. Dump trucks,
however, are usually considered capital goods, because they are used by construction and manufacturing companies to haul various materials in order
to make other products such as roads, bridges, dams, and buildings. Similarly, a chocolate candy bar is a consumer good but the machines used to
produce the chocolate candy bar are considered capital goods.
Capital goods are generally man-made, and do not include natural resources such as land or minerals, or human capitalthe intellectual and physical
skills and labor provided by human workers.

CEPT Product Profile

STRUCTURE OF THE CEPT PRODUCT LIST

The CEPT Product Lists is a compilation of the products which Member Countries have offered to include in the CEPT Scheme, whether in the
Fast Track, Normal Track or Temporary Exclusloin Lists. Since the exchange of CEPT concessions is based on reciprocity, the, size of the
inclusion list by a Member Country indicates the coverage of those concessions that it would be eligible to receive.
Using Member Country submissions to the ASEAN Secretariat as of December 1993, there are a total of 44,095 tariff lines in these lists. There are
a number of caveats to consider when measuring the size of the inclusion list by the number of tariff lines. First, Member Countries differ in the
degree of disaggregation of their tariff lines. For example, the Philippines' tariff lines are disaggregated only up to the eight-digit level. Thailand
uses a mix of 6-digit and 9-digit codes. All the other Member Countries use tariff codes at the 9-digit level. Hence, countries using 6-digit or 8dicrit tariff codes will necessarily have fewer tariff lines than countries using 9-digit level codes. Second, for any given sector the number of tariff
lines included in the CEPT need not be indicative of a more comprehensive coverage of the CEPT for that sector. This is because some sectors
have inherently Greater differentiation of products hence they will necessary have more tariff lines. Nevertheless, even while noting these caveats,
it is important to consider that the tariff lines included in the CEPT represent almost 957( of the total number of tariff lines iii the 6 ASEAN
countries.
There are a total of 14,855 tariff lines in the Fast Track, 25,918 tariff lines in the Normal Track and 3,322 tariff lines in the temporary Exclusion
List (see Table 1). Products in the Temporary Exclusion List are items that are deemed sensitive by each Member Country. Products in this list
will not enjoy any concessions until they are brought into the Inclusion Lists.
Finally, unprocessed agricultural products are not included in the CEPT Scheme. The nature of products in this group is discussed more fully later
in this section. The remaining products are products in the General Exception list. These are products that meet the qualification under Article XX
of the GATT.
Overall Tariff Reduction under the CEPT Scheme
The ultimate objective of the CEPT scheme is to reduce tariff rates among Member Countries to 5% or below. There are 40,773 tariff lines in the
Fast and Normal tracks of the CEPT. The simple average of these tariff rates in 1993 was 12.76%. By the year 1999, this average will be reduced
to 4.48% or to less than half of the average base rate of 1993. By 2008, average tariff rates will be down to 2.3%.
The average base rate differs among countries. Thailand has the highest rate at 22.56% while Singapore has the lowest at 0.36%. The tariff
reduction is faster during the first five years of the CEPT Scheme. This is depicted in Figure 1 where the slope of the line (indicating the rate of
tariff reduction) is steeper for the period 1993 to 2001 than for the period 2001 to 2008.
One notable effect of the CEPT is to lower the dispersion of tariff rates among ASEAN Member Countries. One measure of the degree of
dispersion in tariff rates is the range (the difference between the highest and lowest average tariff rate). In 1993, the range was 22.20%. Under the
CEPT tariff reduction schedule, the range will eventually fall to something like 4.82% (see Table 5).
Normal Track of the CEPT
There are a total of 25,918 tariff lines included iii the normal track of the tariff reduction scheme of AFTA (see Table 2). Malaysia has the most
number of tariff lines under the normal track (5,7 1 0) while the Philippines has the lowest (3,432). The breakdown by commodity is also shown
in Table 2. The biggest submissions are in base metals and metal articles, machinery and electrical appliances and chemicals.
The benchmark years for the Normal Track of the CEPT tariff reduction pro
Fast Track program

The CEPT also includes a fast track program where products are scheduled to undergo an accelerated tariff reduction program to reduce the level
of protection down to 0-5% in ten years. The sectors covered by the Fast Track program includes:
Fats & oils
Mineral products
Chemicals
Plastics
Hides & leather
Pulp & paper
Textiles & apparel
Cement
Gems
Base metals & metal articles
Machinery & electrical appliances
Miscellaneous manufactured articles
It should be noted that the sectors covered by the Fast Track program actually includes more than the 15 products originally agreed upon in the
1992 Singapore Declaration. The notable additions are mechanical appliances and mineral products. There are a total of 14,855 tariff lines
included in the fist track program (see Table 3). About 45% of the tariff line submissions are in the textiles and apparel sector alone. Chemicals
accounts for about a fourth while plastics and appliances account for a little less than a fifth.
The benchmark years for the Fast Track Programm of the CEPT are the fifth year (1998) and the tenth year (2003). By the fifth year, all products
in the Fast Track must have applied CEPT tariff rates it or lower than 20%. By the tenth year of the CEPT, all products in the Fast Track must
have tariff rates within the 0-5% range.
Temporary Exclusion List
As of December 1993, the six ASEAN countries have submitted a total of 3,322 tariff lines for temporary exclusion from tile CEPT (see
This is less than 8% of the total tariff lines committed under the CEPT Scheme.
The bulk of submissions in the temporary exclusion list is in the chemicals, plastics and vehicles sectors. Too-ether these three sectors account for
a little over 45% of the temporary exclusion list. This ranking is however biased by the fact that Indonesia has made a large number of
submissions in these sectors. If we look at each Country individually to determine which products bulk large in the temporary exclusion list, we
find that machinery and electrical appliances is ranked first in Brunei; chemicals in Indonesia; vehicles in Malaysia; textiles in the Philippines;
and vehicles in Thailand.
The temporary exclusion list will be reviewed by the eighth year of the CEPT scheme. The ASEAN countries will make an effort to remove
products in the exclusion list and subject them to a schedule of tariff reduction to bring the tariffs down to 0-5% within the remaining seven years
of the program.
Unprocessed Agricultural Products

Unprocessed agricultural products are defined in Article 7 of the CEPT Agreement as :

(a) agricultural raw materials/ unprocessed products covered under Chapter 1-24 of the Harmonised System (HS), and similar agricultural raw
materials/ unprocessed products in other related HS Headings; and
(b) products which have undergone simple processing with minimal change in form the original products.
Member countries have submitted a list of processed agricultural products that are based on this definition. However, all Member Countries have
also Included some products that fall under this definition in the CEPT. This leaves only a small number of Unprocessed agricultural products that
are excluded from the CEPT.
There are 1,823 tariff lines in the list of unprocessed agricultural products submitted by Member Countries (see Table 5). This accounts for about
4% of the total number of tariff lines in ASEAN. Fish (Chapter 3), edible vegetable (Chapter 7) and edible fruits (Chapter- 8) are the three biggest
chapters in terms of number of tariff lines. Apart from HS Chapters 1-24, other HS Chapters where Unprocessed agricultural products in the sense
of definitions (a) and (b) can be found are Chapter 40 (rubber), Chapter 41 (raw hides) and Chapter 44 (wood).