Introduction

In relation to the development and implementation of the agreed CEP work program, Ministers requested that senior officials ensure that progress was made across all areas of the CEP work program and tasked them to report back to the next ministerial consultations in 2002. Under the initial work program, ministers agreed that capacity building would be an important aspect of the initial CEP work program and announced several new initiatives designed to build capacity and facilitate trade and investment. Ministers tasked senior officials to work towards implementing the initial work program of the CEP Framework in the area of standards and conformity assessment and to explore the scope for cooperation on common approaches on food regulation.

The content of the AFTA CER Free Trade Agreement

The ASEAN Free Trade Area (AFTA) was established in 1993. It now comprises the ten countries of ASEAN: Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The agreement provides for the phased reduction of tariffs on manufactures imports from ASEAN countries.

At the Third ASEAN Informal Summit in November 1999 in Manila, ASEAN Leaders agreed to eliminate all tariffs by 2010 (ahead of the original schedule), for the six original members of ASEAN. Leaders also agreed in principle to bring forward to 2015 from 2018 the schedule for eliminating all tariffs for the four newer members of ASEAN. For some sensitive products, the original date of 2018 will still apply. To achieve this target, the six original signatories to the CEPT Agreement are scheduled to eliminate duties on at least 60% before 2003.

The Australia and New Zealand Closer Economic Relations Trade Agreement (known as CER) entered into force in 1983. Its central provision is the creation of a WTO-consistent Free Trade Agreement between Australia and New Zealand. Since its inception, the CER agreement has undergone three general reviews which have broadened its scope and accelerated its implementation. All tariffs and quantitative restrictions on trade in goods have now been eliminated. The agreement also covers services and addresses the harmonisation of a range of non-tariff measures that affect the free flow of goods and services, including those relating to quarantine and customs issues, standards and business laws.

The ASEAN Free Trade Area (AFTA)-Closer Economic Relations (CER) Linkage was established in September 1995 during informal consultations between ASEAN Economic Ministers and Ministers from Australia and New Zealand (the CER countries), with the aim of facilitating trade and investment flows between the two regions. In October 2000, at their 5th annual consultations, AFTA-CER Ministers agreed that the two regions should work towards economic integration through a Closer Economic Partnership (CEP).

When the Linkage was established in 1995, Ministers agreed that it should provide tangible benefits to their business communities and should build closer cooperation between the two free trade areas. The two regions undertake a range of practical, business-oriented activities under the Linkage such as exchange of information, human resource development, trade and investment facilitation and promotion, industrial cooperation and activities relating to customs matters, standards and conformance and competition policy. Examples include a Memorandum of Understanding (MOU) on Standards and Conformance, a program for the provision of training to ASEAN customs officials on the WTO's Customs Valuation Code, a transport information directory and a study into freight movement along the Mekong delta corridor.

Business communities have played a central role in the development of the AFTA-CER activities by participating in the business leaders' dialogue, academic activities and Ministerial meetings.

Their work has included identifying barriers to trade and investment in ASEAN and CER and discussions on human resource development between the two regions.

In recognition of the important role of business, ASEAN and Australian and New Zealand Ministers agreed in Hanoi on a joint Australian and Malaysian proposal to establish an AFTA-CER business advisory council. The council will commence in the second half of 2002, with the aim of promoting business involvement in the work of the Closer Economic Partnership. It is envisaged that the council will brief ASEAN and CER Ministers during their annual consultations on business views related to the CEP.

Economic Benefits

There are economic benefits for all countries from forming an AFTA CER Free Trade Agreement. All countries gain in terms of productivity, investment, income and welfare.

In terms of the productivity, there has been a significant increase in the Gross Domestic Products in member countries. It is being expected that the growth in the Gross Domestic Products will be keep increasing in these member countries at least in the following 20 years.

The gains in welfare (measured by real consumption) would be larger than the gains in real income since countries can borrow against their higher earning potential. Real welfare could rise by more than 1 per cent for Malaysia, Singapore and Thailand by 2005. The gain in welfare plays an important role in stablizing the development of the society and maintaining peaceful life among citizens.

The higher productivity and efficiency of resource use in each economy increases the return on capital and therefore increases investment. Some of this extra beneficial investment comes from offshore. For AFTA the extra capital inflow from AFTA-CER liberalisation amounts to US$30 billion over the decade to 2010 and for CER the extra capital inflow is near $8 billion. The inflow of foreign capital causes the real exchange rate of each country to appreciate against the US$ above what it might otherwise be. The real appreciations are small. With slightly stronger currencies and higher demands for investment goods as well as final consumption there is some initial diversion of exports to the domestic market. But once investments have been made and domestic production increases there is a pickup in exports and, with less capital inflow required, by around 2014 real exchange rates are back to where they were before the formation of AFTA-CER.