TRADE FACILITATION: Development Perspectives and Approaches of ASEAN in presented by

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1 TRADE FACILITATION: Development Perspectives and Approaches of ASEAN in 2004 presented by Noordin Azhari Director, Bureau for Economic Integration ASEAN Secretariat at the Seminar on Trade Facilitation in East Asia November 2004, Shanghai, China INTRODUCTION 1. Trade facilitation has been a buzz-word in the multilateral trading system since the successful conclusion of the Uruguay Round which laid the groundwork for the progressive liberalization of barriers to trade. In the WTO, trade facilitation has been defined as the simplification and harmonization of international trade procedures trade procedures qualified as activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade. The WTO also describes trade facilitation as relating to a wide range of activities such as import and export procedures (e.g. customs or licensing procedures), transport formalities, etc. 2. Trade liberalization in the context of rising regionalism all the more emphasizes the importance of trade facilitation as small countries and region compete in the global market for trade in goods and services and investment. Economic integration in the ASEAN region is relatively young given that the decision to establish a free trade area was made only more than ten years ago, almost the same time the Uruguay Round concluded. Be that as it may, the importance that ASEAN has attached to trade facilitation as part and parcel of trade liberalization cannot be overemphasized. 3. The objective of this presentation is to survey the trade facilitation provisions in ASEAN economic agreements and assess the extent to which these have contributed to the realization of ASEAN economic integration goals and objectives.

2 TRADE FACILITATION IN THE WTO 4. Majority of the ASEAN member countries are members of the WTO. It is therefore not surprising if trade facilitation in the region is largely influenced by what has been provided for in the WTO. 5. Trade facilitation, in particular simplification and harmonization of trade procedures, is inscribed in the legal framework of the GATT, i.e. Article V (Freedom of Transit), Article VII (Valuation for Customs Purposes), Article VIII (Fees and Formalities Connected with Importation and Exportation) and Article X (Publication and Administration of Trade Regulations). These trade facilitation provisions have to a certain extent been further clarified and elaborated in the WTO through agreements such as the Agreements on Customs Valuation, Import Licensing, Pre-Shipment Inspection, Rules of Origin, etc. It should be noted that all these provisions promote three principles: transparency, simplification and harmonization. ASEAN ECONOMIC INTEGRATION 6. ASEAN economic integration was elevated to a higher level when in 1992, the Leaders of ASEAN agreed to establish the ASEAN Free Trade Area by It is a well-known fact that this deadline has been accelerated on several occasions. After more than 10 years of implementation, AFTA has been realized as tariffs on 98.62% of the products in the CEPT Inclusion List (IL) of ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) are now within the 0-5% tariff range. ASEAN s new entrants (Cambodia, Lao PDR, Myanmar and Viet Nam or CLMV) have 79.13% of the products traded in the region have been moved into the IL and tariffs on 69.88% of these items have already been brought down within the 0-5% band. To date, 60.89% of the products in the IL of ASEAN-6 are tariff-free while the average tariff for ASEAN-6 under the CEPT Scheme has gone down to 1.91% from 12.76% in 1993.

3 7. Like any regional trading arrangement in its infancy stage, the CEPT Agreement focused mainly on the reduction and/or elimination of trade barriers. Article 5(C) of the said Agreement provides that Member Countries shall explore further measures on border and non-border areas of cooperation to supplement and complement the liberalization of trade. These may include, among others, the harmonization of standards, reciprocal recognition of tests and certification of products, removal of barriers to foreign investment, macroeconomic consultations, rules for fair competition, and promotion of venture capital. The CEPT Agreement did not have explicit provisions to simplify and harmonize customs and other related procedures not until 1994, when the CEPT-AFTA was first accelerated. 8. Along with the decision on the acceleration, ASEAN member countries also committed to work on customs harmonization activities which included harmonization of tariff nomenclature, customs procedures and customs valuation. Further, to facilitate the processing of products traded using the CEPT-AFTA Scheme, the Green Lane for CEPT products was adopted to expedite clearance for CEPT products by simplifying customs procedures and formalities. As the ASEAN economic integration matured and deepened, trade facilitation activities likewise expanded and included areas such as harmonization of standards and facilitation of goods in transit. 9. Rapid developments in the global trading system, which includes the continuous rise of regionalism and globalization, compelled ASEAN member countries to decide to bring ASEAN economic integration to another level. At the 9 th ASEAN Summit in Bali in October 2003, the ASEAN Leaders adopted a framework to achieve an ASEAN Economic Community or what is commonly known as the AEC by The ultimate objective of the AEC is to create a single market and production base of 520 million people, with a combined gross domestic product (GDP) of over US$ 600 billion (based on 2002 figures). The AEC will be characterized by a single market and production base, with free flow of goods, services, investment and skilled labour, and freer flow of capital.

4 10. As enshrined in the Declaration of ASEAN Concord II or the Bali Concord II, the ASEAN economic community-building process shall be hinged on four major aspects: (a) Building on current economic cooperation. ASEAN will put in place a work programme to remove non-tariff barriers (NTBs) to trade, and harmonize product standards and technical regulations. In particular, the completion of mutual recognition arrangements (MRAs) for five priority sectors, namely: electrical and electronic equipment, pharmaceuticals, cosmetics, telecommunications equipment and prepared foodstuff will be brought forward to 2004/2005. Member countries which are ready to liberalize certain sectors bilaterally can also do so provided that such arrangement would allow others to join in subsequently. (b) Fast-tracking integration identified priority sectors. Eleven sectors were identified for priority integration. These are: wood-based products, automotive, rubber-based products, textiles and apparel, agro-based products, fisheries, electronics, information and communications technology (ICT), healthcare, air travel and tourism. For these sectors incentives such as zero internal tariffs, harmonization of standards and customs procedures, enhanced intellectual property rights (IPRs) protection, and the immediate removal of all non-tariff barriers will be implemented before 2010 or ten years earlier than the 2020 deadline for the AEC. (c) Strengthening ASEAN institutions. ASEAN is strengthening its institutions to streamline the decision-making process and ensure effective implementation of all ASEAN initiatives. (d) Narrowing the developmental gap in ASEAN. To strengthen ASEAN as a region, the more developed ASEAN member countries will continue to help their less developed neighbours in capacity-building to narrow the developmental gap. Measures to upgrade the business infrastructure and regulatory regimes will also be implemented.

5 TRADE FACILITATION IN ASEAN 11. The principles and concepts of trade facilitation in ASEAN are all based on the WTO although, just like other regional trading arrangements, ASEAN s trade facilitation initiatives go beyond the WTO provisions. Trade facilitation in ASEAN is anchored on an integral approach of streamlining and synchronizing cooperation efforts in the areas of transport, customs, standards and conformance and non-tariff measures. Over the years, ASEAN has been working on putting in place adequate legal frameworks reflective of member countries commitments to trade facilitation. Its primary objective is to stimulate higher productivity and efficiency in every facet of the production processes production, commercialization, transportation and delivery. The ASEAN Customs Agreement of 1997 and the ASEAN Framework Agreement on the Facilitation of Goods in Transit are clear evidence of this regional effort. 12. For the purposes of this paper, ASEAN s trade facilitation will be surveyed under four major categorizations: transparency, simplification, harmonization and modernization. 13. Transparency is by far an essential trade facilitating tool not only under the WTO but in ASEAN as well. In customs, for example, transparency enhancement is one of the areas identified in the ASEAN Customs Policy and Implementation Work Programme (PIWP) and the objective is to ensure that current methods of information dissemination are enhanced and broadened on a regional basis. As a first step, the ASEAN Customs website has been established and here interested parties can get information regarding customs cooperation in ASEAN, member countries customs procedures and related provisions, among others. 14. Transparency is also a salient feature in the other ASEAN trade facilitation agreements particularly in standards and conformance and facilitation of goods in transit. In ASEAN s various agreements, member countries are required to keep transparent relevant laws, regulations and administrative procedures. Transparency is

6 promoted through the dissemination of relevant information through a centralized inquiry point that is, the ASEAN Secretariat website ( 15. On standards, as part of efforts to enhance transparency, ASEAN member countries actively exchange directories on standards, technical regulations and conformity assessment. Such efforts facilitate the access by manufacturers to technical information and in-use regulations. The ASEAN Standard and Quality Bulletin also work for the same purpose. 16. Simplification is another important component of trade facilitation aimed at reducing business transaction especially in free trade environment. In ASEAN, simplification is emphasized in customs, rules of origin and goods in transit. 17. Simplifying existing cargo clearance procedures, integrating best practices in the overall standard operating procedures in cargo clearance systems and the development of ASEAN guidelines on customs audit are among the measures being undertaken as part of the ASEAN Customs Policy and Implementation Work Programme. Simplification of transport procedures and requirements, including customs control procedures of transit transport, are all provided for in the ASEAN Framework Agreement on Facilitation of Goods in Transit. 18. Harmonization could be considered as the more crucial, yet most challenging, aspect of trade facilitation. In ASEAN economic cooperation and integration, harmonization, as a trade facilitation tool, has been time and again emphasized especially in the areas of standards and customs although full harmonization of procedures and formalities remain to be limited in the region. 19. Harmonization in customs is mainly done in the following areas: (a) Customs Valuation this mainly entails harmonization of customs valuation methods in ASEAN member countries through the adoption of the WTO Valuation Agreement.

7 (b) Tariff Classification promoting transparency, consistency and uniformity in the classification of goods through the implementation of the ASEAN Harmonized Tariff Nomenclature (AHTN). This regional tariff nomenclature system entered into force in all Member Countries in April Important progress has been achieved in the implementation and operationalization of the AHTN, which was based fully on the Harmonized System 2002 or HS In order to address the concerns of the private sector on tariff classification, the AHTN Technical Committee was established in early-2004 to issue binding rulings on classification in ASEAN for uniformity and consistency in the tariff classification system. 20. For standards and conformance, ASEAN cooperation focused mainly on the areas of harmonization of products standards and mutual recognition arrangements (MRAs). 21. The ASEAN Consultative Committee for Standards and Quality (ACCSQ established in 1992) has for its major task identifying measures that would facilitate the removal of technical barriers to trade among ASEAN member countries in order to expand intra- and extra-asean trade. Harmonization work in ASEAN is closely guided by the Hanoi Plan of Action (HPA), which sets the harmonization of product standards through alignment with international standards for products in priority sectors and the implementation of the 1998 ASEAN Framework Agreement on Mutual Recognition Arrangements (MRAs). 22. In 2003, ASEAN member countries completed work on the harmonization of product standards, involving 59 international standards, on the 20 products sectors prioritized by the ASEAN Economic Ministers. In addition, concomitant to the realization of e-asean objectives, a group of 72 standards for safety and 10 standards for electromagnetic compatibility were also harmonized. 23. Important results were also achieved in developing Mutual Recognition Arrangements in five sectors, namely: (i) electrical and electronic equipment; (ii)

8 telecommunication equipment; (iii) cosmetics; (iv) pharmaceuticals; and (v) prepared foodstuffs. For example, the Agreement on ASEAN Harmonized Cosmetic Regulatory Scheme, signed in September 2003, is an MRA under which signatories to the Agreement recognize the product registration approval of any signatory in accordance with agreed rules and procedures. The Agreement also includes an ASEAN Cosmetic Directive. 24. For pharmaceutical products, ASEAN developed and implemented the ASEAN Common Technical Dossiers covering quality, safety, efficacy and administrative data. This important document lays down the fundamentals to develop an MRA in the sector at the later stage. 25. Modernization has become an important dimension in trade facilitation that has been brought about by advances in technology. Automation, EDI and paperless transaction have become new jargons in trade facilitation. 26. Automation is also one element in the ASEAN Customs Policy and Implementation Work Programme. In line with this and on the basis of the strategies identified by the Leaders, the ten member Customs Administrations in ASEAN came up with the Strategic Plan of Customs Development (SPCD) with the view to laying down the fundamentals for a modernized customs environment, viable to the trading community and investors. 27. One of strategic programs under the SPCD consists of the ASEAN Single Window (ASW), conceptually defined as a single submission, a single processing of data and information, and a single decision-making for the expeditious release of shipments of materials and goods to production and consumption. The ASW operates on the platform of synchronized partnership and functional linkages among related customs stakeholders (government agencies, the Customs and businesses) and their technical systems. To that end, particular attention is given to incorporate international business practices as part of efforts to optimize submission and usage of provided information by the trading community.

9 28. The ASW could be seen as the realization of standards set forth in the Revised Kyoto Convention on the simplification and harmonization of customs procedures and international best practices, and relevant international conventions and standards. It will effectively support the practical implementation of measures of accelerated trade liberalization in ASEAN as undertaken in 2004 (accelerated reduction of tariff and elimination of non-tariff measures). 29. For the purpose of the ASW, ASEAN currently looks into the following areas, among others: (i) standardization of information parameters of trade management and of customs release and clearance; (ii) consolidation, harmonization and integration of processes of management of data and information with view to streamline processing procedures; (iii) standardization of formalities and practices by line ministries, among them, customs authorities; and (iv) synchronization of communication and consultation mechanisms between customs stakeholders. 30. Modernization and optimizing customs operations and activities are closely related to the application of Information and Communication Technology (ICT) into all areas of management and control. It should be highlighted that since December 2003, an ASEAN e-customs Action Plan has been established to accelerate the introduction of ICT applications in Customs, for better efficiency and to take advantage of the technological progress in information processing. OTHER TRADE FACILITATION PROVISIONS IN ASEAN 31. Other trade facilitation measures in ASEAN include the adoption of risk management into customs activities. It covers all stages of risk control by customs officers, and contributes to a significant reduction of physical examination by the customs as well as by other border-control agencies. It is expected to have the rate of physical examination of cargoes to be from one to five percent in a near future. 32. Taking into consideration the increasing complementarity of production and assembly chains within ten economies, ASEAN has prioritized modernizing customs transit systems and other customs systems in managing temporary admission, export facilities and trade facilitating regimes. Primary legal sources for the regional customs

10 transit come from the signed ASEAN Framework Agreement on the Facilitation of Goods in Transit, in particular Protocol 2 Border Posts and Protocol 7 Customs Transit System. Furthermore, more efforts have been made at the regional and bilateral levels in the provision of facilities for the ASEAN Transport Corridor through liberalization and synchronization of border controls and management. 33. In addition to the efforts earlier mentioned, ASEAN continued to intensify its work in phasing down non-tariff measures to support trade liberalization. These activities come to support the effective and practical operationalization of tradefacilitating measures. Partnership with the private sector has also been considered one of the essential programs to create an ASEAN Customs environment conducive to promoting efficiency. Businesses actively participate in the design and implementation of initiatives for regional customs integration. They also provide knowledge and information to policy makers and technicians in the configuration of new systems and models for information processing as well as in the standardization of business flows and systems of management. 34. Trade facilitation will also continue to be an important component of ASEAN economic integration especially as it moves towards the ASEAN Economic Community. Over the course of ASEAN s economic community-building process, ASEAN will work on: (i) improving Rules of Origin to make it more transparent, predictable and standardized according to the best practices of other RTAs and the WTO; (ii) faster customs clearance and simplified customs procedures; (iii) ensuring transparency on non-tariff measures and eliminating those that are barriers to trade; and (iv) accelerating the completion and implementation of MRAs, setting specific targets for harmonizing standards and technical regulations, and developing ASEAN technical regulations, where possible, for national application. CONCLUSION 35. In conclusion, this paper would like to emphasize that ASEAN s approach in trade facilitation consists of converting trade facilitation initiatives and programs under into effective deliverables for sustainable growth and ASEAN competitiveness.

11 This strategy has as target the structural enhancement of trade facilitation activities through streamlined processes and standardized information and formalities. Private and public sector partnership constitutes the backbone of trade facilitation in the region. And with programs such as enhancing transparency of trade management practices, regulations and policies, and collaborative partnership among major stakeholders to support trade liberalization and economic integration, no doubt, ASEAN s ultimate goal of establishing a single production base and a single market would not be a far-fetched idea after all.