AFTA becomes reality

Since 1997, and the onset of the Asian financial crisis, there has been little for the Association of Southeast Asian Nations to celebrate. But ASEAN rang in this New Year with a much needed boost. On Jan. 1, six of its 10 member-nations completed their plans to create an ASEAN Free Trade Area. Creation of a regional free trade area will boost Southeast Asian economies by sharpening competitiveness and spurring reform. It also provides a challenge to other governments in Asia, such as Japan: Tokyo must fashion a coherent and timely response to the ASEAN initiative.

AFTA was adopted by the six original members of ASEAN -- Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand -- in 1992 and implementation began a year later. Under the scheme, the six countries would reduce tariffs on a wide range of manufactured and agricultural products to between 0 and 5 percent. The move would have important effects since the six countries account for more than 96 percent of trade in the region.

Originally, AFTA was supposed to be completed in 2008. Three years after the plan was inaugurated, though, the organization decided to accelerate implementation to 2003. The economic crisis of 1997 promoted ASEAN to move the deadline up yet another year. The group's four other members -- Cambodia, Laos, Myanmar and Vietnam, all of which joined after the initial decision to establish the AFTA -- have until 2006 to reduce tariffs to the 5 percent level. All import duties in the region will be eliminated by 2010 for the six original members and by 2015 for the new members.

Skeptics note that the pact has loopholes. Member governments can temporarily exclude some products to shield "infant industries" from full-blown competition. Malaysia, which has made a national car a symbol of its development, used the provision to shelter the automotive sector for two years. Yet, the progress is unmistakable. Today, the average tariff on goods traded among ASEAN members is estimated at 3.5 percent -- a marked decrease from 12.76 percent when AFTA was launched in 1993. Currently, only 1,675 of 44,062 specified items traded among the ASEAN six have tariffs above 5 percent.

That progress is vital for an organization that has experienced such frustration in recent years. The Asian economic crisis not only punctured the myth of ASEAN's seemingly boundless future. The resulting political chaos toppled the Suharto government in Indonesia, depriving that country of political stability and robbing ASEAN of its anchor. The group has floundered ever since -- and at a time when China's rise has made Southeast Asia's solidarity and viability more critical than ever. China is now the preferred destination of much needed foreign investment; the inevitability of China's political rise has made accommodation with Beijing more pressing.

China has been quick to capitalize on this window of opportunity. At last year's ASEAN plus Three summit, which included members of the organization plus China, Japan and South Korea, Beijing proposed a China-ASEAN free trade area within a decade. That plan would create a market of nearly 2 billion people; it would also tie Southeast Asia more tightly to China and extend Beijing's influence in the region.

Japan must respond. Japanese production networks are spread throughout Southeast Asia. Any plan that excludes those facilities and products would disadvantage this nation's economy and its standing within the region.

Reportedly, the government is preparing an initiative. Prime Minister Junichiro Koizumi embarks on a five-nation tour of the region from tomorrow, and it is anticipated that he will unveil a large-scale economic cooperation accord with ASEAN during that time. The details of the proposal are still unclear -- and will have to be worked out with ASEAN governments -- but it would have to approximate a free trade area for it to have much impact or to compete with the Chinese proposal. That will be problematic given the strength of the nation's agriculture lobby, which has stymied previous trade initiatives. Thus far, Japan has only concluded one such proposal, with Singapore, which was possible largely because it excluded agricultural trade. Those obstacles to trade must be lifted.

ASEAN governments have recognized that increasing competition is the only way to prepare their economies for the future. It is going to be a difficult process, with inevitable adjustments, some of which will be painful. But to their credit, the region's leaders have not shied away from the challenge. That alone is reason for ASEAN to celebrate the beginning of the New Year. It is a testimony to the organization's vision and courage. It is an example well worth emulating, and a process that Japan should help foster -- and join.