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SCHOOL OF BUSINESS STUDIES ADVANCE DIPLOMA IN FINANCE AND INVESTMENT (GROUP THREE) ABMF4094 INTERNATIONAL FINANCE ASEAN FREE TRADE AREA (AFTA) AGREEMENT AND ITS IMPACT ON MALAYSIA’S TRADE NAME: YU CHAUR YEU (11WBA10172) TANG RICK KEE (11WBA08456) PANG WAI LOON (11WBA09826) YONG DONG LIM (11WBA12109) YOW YONG LOONG (11WBA10842) LECTURER/TUTOR: PN MAZNAH CRITERIA MAXIMUM MARKS MARKS ALLOCATED REMARKS 1.INTRODUCTION 20 2.BODY-FACTS 40 3.RECOMMENDATION 10 4.CONCLUSION 15 5.PRESENTATION 10 1
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Final Report International Finance

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Page 1: Final Report International Finance

SCHOOL OF BUSINESS STUDIES

ADVANCE DIPLOMA IN FINANCE AND INVESTMENT (GROUP THREE)

ABMF4094 INTERNATIONAL FINANCE

ASEAN FREE TRADE AREA (AFTA) AGREEMENT AND ITS IMPACT ON MALAYSIA’S TRADE

NAME: YU CHAUR YEU (11WBA10172)

TANG RICK KEE (11WBA08456)

PANG WAI LOON (11WBA09826)

YONG DONG LIM (11WBA12109)

YOW YONG LOONG (11WBA10842)

LECTURER/TUTOR: PN MAZNAH

CRITERIA MAXIMUM MARKS

MARKS ALLOCATED

REMARKS

1.INTRODUCTION 20

2.BODY-FACTS 40

3.RECOMMENDATION 10

4.CONCLUSION 15

5.PRESENTATION 10

6.REFERENCING 5

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Contents

INTRODUCTION...........................................................................................................................3

Background of AFTA..................................................................................................................3

Objective of AFTA......................................................................................................................3

BODY-FACTS................................................................................................................................6

CEPT Scheme..............................................................................................................................6

Trade Impact on Malaysia..........................................................................................................12

RECOMMENDATIONS...............................................................................................................18

CONCLUSION..............................................................................................................................19

REFERENCE................................................................................................................................20

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INTRODUCTION

Background of AFTA

The ASEAN Free Trade Area is a multilateral agreement on the trade that involving many

sectors for example agricultural trade between the Association of South-East Asian Nations

(ASEAN) member countries. ASEAN Heads of Government agreed to establish an ASEAN Free

Trade Area (AFTA) by the year 2008 to release their economies to the era of globalization.

During the ASEAN Economic Ministers Meeting in September 1994, they advanced their AFTA

target of phasing out tariffs and revising other trade rules that involve 9 countries to year 2003.

AFTA was originally signed by 6 members which includes Singapore, Indonesia, Philippines,

Malaysia, Brunei and Thailand on the date of 28 January 1992 in Singapore. Right after that,

Vietnam, Laos, Myanmar and Cambodia joined into this agreement in between the year of 1995

to 1999. All the countries were given a time frame to meet the AFTA’s tariff reduction

obligation until these countries reaches a free trade level. A free trade area allows the companies

within this ASEAN region to get advantages from the economies of scale. Common Effective

Preferential Tariff (CEPT) Scheme is the main implementing mechanism used in AFTA.

Objective of AFTA

The creation of AFTA is to bring benefits to half a billion of people in ASEAN by improving

to a more efficient and competitive economies and also attract the foreign investments into the

region. The objective of AFTA is to increase the competitiveness of the ASEAN country as a

production base geared for the world market. Through elimination of intra-regional tariffs and

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non-tariffs barriers in the free trade region, it affected the ASEAN’s manufacturing sectors to

become more efficient and competitive in the global market. This will also lead to a situation

where the consumer will import goods from the more efficient producers in ASEAN and thus

expand the intra-ASEAN trade.

The primary objective of the AFTA is to increase the ASEAN region’s competitive advantage as a

production base geared in the world market. The main direction of the AFTA is the liberalization of trade

through the elimination of tariffs and non-tariff barriers among the ASEAN members. The activity was

started to serve as a catalyst for greater efficiency in production and also long-term competitiveness.

Moreover, the expansion of intra-regional trade is giving to the ASEAN consumers wider a choice and

better quality consumer product.

For primary mechanism for the ASEAN Free Trade Area to achieve the goal was given above

which was the Common Effective Preferential Tariff (CEPT). A schedule was established for

phased initiated in year 1992 with the self-described goal is to increase the "region’s competitive

advantage as a production base geared for the world market".

AFTA does not include the common external tariffs of the imported goods. For each ASEAN

members, they may impose tariffs on the entering goods from outside ASEAN based on their

national schedule. However, for the goods originating within ASEAN, all members have to apply

a tariffs rate from 0 to 5 percent. This was known as Common Effective Preferential Tariff

(CEPT). ASEAN members have the option of excluding the CEPT in three cases, which were,

temporary exclusion, sensitive agricultural products, and general exceptions.

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The general rule shows that the local ASEAN content must be at least 40% of the FOB value

of the good. The CEPT only apply to the goods that originating within ASEAN. For the local

ASEAN content can be cumulative, which is, the value of inputs from various ASEAN members

can be combined to meet the 40% requirement. For some certain goods, there are some special

rules apply, which are, change in the Chapter Rules for Wheat Flour, change of Tariff Sub-

Heading for Wood- Based Products, and the last is change in Tariff Classification for certain

Aluminum and Articles thereof.

The administration of AFTA was handled by the national customs and trades authorities in

each ASEAN members. The ASEAN secretariat has authority to monitor and also ensure

compliance with AFTA measures, but there has no legal authority to enforce compliance. The

ASEAN Charter is intended to bolster the ASEAN Secretariat’s ability to ensure consistent

application of AFTA measures.

Due to the increase in the competitiveness of manufacturing industries in ASEAN as well as

the huge size of the market, investors can enjoy the economies of scale in the production area.

Therefore, ASEAN hopes to attract more foreign investors to invest their fund in the region. And

this will then stimulate the growth of supported industries in the region for many direct foreign

investments.

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BODY-FACTS

CEPT Scheme

CEPT scheme is a tariff scheme arrangement among the ASEAN members that will reduce the

intra-regional tariffs and remove non-tariff barriers over a ten year period since the commencing

date which is January 1, 1993. The main target of the scheme is to reduce the tariffs on all the

manufactured goods to 0-5% by the year of 2003. It will benefit the Malaysian exporter to

ASEAN. For example, a lower CEPT rates make the country’s products cheaper in these markets

and thus stimulate a greater demand in the market. The rise in exports to the ASEAN would also

depend on the price elasticity of demand.

Since CEPT is the main instrument of making ASEAN a free trade area, therefore the

ASEAN Member States shall have common effective tariffs among themselves in AFTA but the

tariffs on the non-ASEAN countries shall continue to be determined individually.

Generally, all the manufactured products which includes the capital goods and processed

agricultural products are covered under CEPT scheme. But there are general exceptions for the

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CEPT scheme. For example, a country may exclude a product which they consider such product

as a necessary for the protection of its national security, protection of public morals, protection

of human, animal or plant life and health as well as the protection of public morals, historic or

archaeological value. Besides that, if a member states who not ready to include certain sensitive

products in the CEPT scheme may can also exclude the products on a temporary basis. But it will

stop them from enjoying the CEPT tariff from other ASEAN member states.

Based on the AFTA agreement, there are two types of tariff reduction under the CEPT scheme

which is the Normal Track Program and the Fast Track Program. For Normal Track Program, the

products with tariff rates above 20% has to reduce to 20% by 1st of January 2008 and

subsequently reduce from 20% to 0-5% by 1st of January 2003. Under the same program, the

products with tariff rates below 20% will reduce their products to 0-5% by 1st of January 2000.

For Fast Track Program, products with tariff rates more than 20% have to reduce to 0-5% by 1st

of January 2000 while products with tariff rates less than 20% will have to reduce to 0-5% by 1st

of January 1998.

Apart from the tariff reduction in the AFTA agreement, CEPT scheme also provides the

elimination of QRs which includes the Quotas, Licenses etc and the NTB (Non Tariffs Barriers)

as well as exceptions on foreign exchange restrictions on CEPT products. All the QRs on the

CEPT products shall be eliminated by the member states upon the enjoyment of concessions

applicable to these products.

For the Non Tariff Barriers, all the member states shall eliminate these CEPT products on a

gradual basis within a period of five years after the enjoyment of concessions. Besides that, the

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member states shall make exceptions to the foreign restrictions relating to payments and the

repatriation of such payment on the CEPT products.

Started from January 2010, businesses in the Asean-6- Malaysia, Indonesia, Thailand,

Singapore, Brunei and the Philippines will benefit from a completely free trade area -Asean Free

Trade Area (AFTA), where duties on most products within AFTA will be eliminated.

Under the Common Effective Preferential Tariff (CEPT) Scheme, by January 1, Malaysia is

committed to abolish duties on 2123 products which includes the import duties on tropical fruits,

tobacco and tobacco products to 5% from the current duties ranging from 10% to 100%, while

the import duties on rice and rice products will be reduced to 20% and 15% respectively from the

current 40%.

Among the 2,123 products of which import duties will be eliminated include fish products

with 10 tariff lines, vegetable products (nine tariff lines); palm oil (17 tariff lines); prepared food

stuff (88 tariff lines); mineral products (17 tariff lines); chemical products (166 tariff lines);

plastic and rubber (366 tariff lines); leather (31 tariff lines); and wood products (61 tariff lines),

paper products (137 tariff lines); footwear (two tariff lines); ceramic products (94 tariff lines);

precious stones (3 tariff lines); base metal (iron and steel - 555 tariff lines); machinery (144 tariff

lines); vehicles (238 tariff lines); other manufactured items (74 tariff lines) and work of art (3

tariff lines).However, import duties on alcoholic beverages have been excluded from tariff

concessions under the CEPT Scheme.

The ASEAN Free Trade Area (AFTA) has now been virtually established. ASEAN Member

States have made significant progress in reducing and eliminating intra-regional tariffs through

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the Common Effective Preferential Tariff (CEPT) Scheme for AFTA. During the 1st January

2010, there will be a significant in that ASEAN-6 will be a completely free trade area when

duties on most of the products are eliminated. This showed that Malaysia has committed to

eliminating the import duties on 2123 products, reducing the import duties to 5% for tropical

fruits, tobacco and tobacco products as well as reducing the import duties for rice and rice

products to 20% .

Among the 2,123 products that have been scheduled for the elimination of import duties covers :

fish products - 10 tariff lines

vegetable products - 9 tariff lines

palm oil - 17 tariff lines

prepare food stuffed - 88 tariff lines

mineral products - 17 tariff lines

chemical products - 166 tariff lines

plastic and rubber - 366 tariff lines

leather - 31 tariff lines

wood products - 61 tariff lines

paper products - 137 tariff lines

foot wear - 2 tariff lines

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ceramic products - 94 tariff lines

precious stones - 3 tariff lines

based metal (iron and steel) - 555 tariff lines

machinery - 144 tariff lines

vehicles - 238 tariff lines

manufacture items - 74 tariff lines

work of art - 3 tariff lines

Import duties on tobacco and tobacco products and tropical fruits which ranges currently from

10-100 per cent will be brought down to 5 per cent on 1 January 2010. For rice and rice products

which are highly sensitive products, the duties which are currently at 40% will be reduced to 20

and 15 respectively. Alcoholic beverages have been excluded from tariff concessions under the

CEPT Scheme.

Below are number of Tariff Lines in the Tentative 2010 CEPT Package by Tariff Category

Country

Number of Tariff

LinesPercenta

ge

0-5%

> 5%

Other

Total

0-5%

>5%

Other

Total

Brunei D. (AHTN

8,22

3

- - 8,22

3

100.00

- - 100

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2002)Indonesia (AHTN 2007)

8,62

516 -

8,64

1

99.81 - -

100

Malaysia (AHTN 2007)

12,227

12 -

12,239

99.90

0.10 -

100

Philippines (AHTN 2007)

8,91

934 -

8,95

3

99.62

0.38 -

100

Singapore (AHTN 2007)

8,30

0 - -

8,30

0

100.00 - -

100

Thailand (AHTN 2007)

8,30

0 - -

8,30

0

100.00 - -

100

ASEAN-6

54,594

62 0

54,656

99.89

0.11

0.00

100

Cambodia (AHTN 2002)

10,537 - -

10,537

100.00 - -

100

Lao PDR (AHTN 200

7,90

0

314

- 8,21

4

96.18

3.82

- 100

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7)Myanmar (AHTN 2002)

8,24

0 - -

8,24

0

100.00 - -

100

Vietnam (AHTN 2007)

8,01

485 -

8,09

9

98.95

1.05 -

100

CLMV

34,691

399 -

35,090

98.86

1.14 -

100

ASEAN 10

89,285

461 0

89,746

99.49

0.51

0.00

100

The number of Tariff Lines at 0% for ASEAN in the 2010 CEPT Package

Country

Number of Tariff Lines Percentage

0% > 0%Total

IL 0% >0% TotalBrunei D. (AHTN 2007) 8,223 - 8,223 100.00 - 100Indonesia (AHTN 2007) 8,625 16 8,641 99.81 0.19 100Malaysia (AHTN 2007) 12,173 66 12,239 99.46 0.54 100Philippines (AHTN 2007) 8,857 96 8,953 98.93 1.07 100Singapore (AHTN 2007) 8,300 - 8,300 100.00 - 100Thailand (AHTN 2007) 8,287 13 8,300 99.84 0.16 100ASEAN-6 54,465 191 54,656 99.65 0.35 100

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Cambodia (AHTN 2002) 795 9,742 10,537 7.54 92.46 100Lao PDR (AHTN 2007) 5,891 2,323 8,214 71.72 28.28 100Myanmar (AHTN 2007) 4,992 3,248 8,240 60.58 39.42 100Vietnam (AHTN 2007) 4,618 3,481 8,099 57.02 42.98 100CLMV 16,296 18,794 35,090 46.44 53.56 100ASEAN 10 70,761 18,985 89,746 78.85 21.15 100

As from 1st January 2005, Malaysia has been transferring all completely built-up (CBU) as

well as completely knocked-down (CKD) motor vehicles which were not offered in the previous

preferential tariff concession into the CEPT. The CBU motor vehicles were included in the

CEPT at 20% while the CKD motor vehicles were phased-in at zero duty. On 19 October 2005,

Malaysia has further reduced their duties on CBUs to 15% and by 1st of January 2008 the duties

will be reduced to 0 to 5%. Lastly, the CEPT rates for both CBU public transportation vehicles

were further reduced to 5% effective from 16 January 2006.

Besides that, Malaysia has also transferred eight rice products into the CEPT during year

2005. With these transfers, Malaysia has phased-in 99.3% of its products into the CEPT.

Meanwhile the remaining 0.7% of Malaysia products which comprise with alcoholic beverages

and arms and ammunition are permanently excluded from the scheme.

Trade Impact on Malaysia

Since the year 1993, the average CEPT rates from the graph shows that Malaysia has been the

total tariff from their manufactured goods from 10.79% to 1.95% in the year 2003. Besides that,

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statistics show that after the AFTA was established the trade amount among the ASEAN

countries has grown from USD 44.2 billion in year 1993 to USD 95.2 billion in years 2000, this

show that the trade of ASEAN countries increases 11.6% in overall. Since Malaysia is part of

ASEAN countries, through the reduction in tariffs we can see that is an impact to Malaysia.

Average CEPT Rates, By Country, 1993-2003

Country 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Brunei D. 3.78 2.64 2.54 2.02 1.61 1.37 1.55 1.26 1.17 0.96 1.04

Indonesia 17.27 17.27 15.22 10.39 8.53 7.06 5.36 4.76 4.27 3.69 2.17

Malaysia 10.79 10 9.21 4.56 4.12 3.46 3.2 3.32 2.71 2.62 1.95

Philippine 12.45 11.37 10.45 9.55 9.22 7.22 7.34 5.18 4.48 4.13 3.82

Singapore 0.01 0.01 0.01 0.01 0 0 0 0 0 0 0

Thailand 19.85 19.84 18.16 14.21 12.91 10.24 9.58 6.12 5.67 4.97 4.63

ASEAN6 11.44 10.97 10 7.15 6.38 5.22 4.79 3.64 3.22 2.89 2.39

Cambodia 10.39 10.39 8.89 7.94

Lao PDR 5 7.54 7.07 7.08 6.72 5.86

Myanmar 2.39 4.45 4.43 4.57 4.72 4.61

Vietnam 0.92 4.59 3.95 7.11 7.25 6.75 6.92 6.43

ASEAN10 7.03 6.32 4.91 5.01 4.43 4.11 3.84 3.33

Exports of ASEAN members to ASEAN countries, 1989-2003

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1989 1992 1995 1998 2003

Indonesia 2,390,922.9 4,335,113.6 6,046,345.9 8,726,582.8 10,100,717.0

Malaysia 6,300,972.6 11,858,175.3 19,533,263.9 16,918,096.7 24,617,703.0

Philippines 530,970.3 518,827.8 2,239,100.7 3,719,357.7 6,423,036.4

Singapore 9,241,236.1 12,703,439.0 31,437,035.8 23,418,492.9 47,947,567.0

Thailand 2,278,803.9 4,102,380.7 10,698,949.2 8,257,261.8 13,648,218.0

Total ASEAN

5

20,742,905.9 33,517,936.4 69,954,695.4 61,039,792.0 102,737,241.4

From the table, we can clearly see the impact of average CEPT rates on the trade of Malaysia.

There is a negative relationship between average CEPT rates on the trade of ASEAN and the

exports of ASEAN members to ASEAN countries. The lower the CEPT rate the higher the

export figure of Malaysia.

A factor that causes Malaysia’s export to increase is because through the reduction of tariffs

among ASEAN countries, the consumers of other countries can purchase Malaysia’s products at

a cheaper price as compared to their domestic products. And therefore, they are willing to

purchase more products that imported from Malaysia. Since there are more demand for

Malaysia’s product, therefore Malaysia are willing to export more to their country.

Before the introduction of AFTA, the ASEAN countries need to purchase resources with non

ASEAN countries to seek for a lower price resources, although the resources are cheaper as

compare with ASEAN countries but there are still a high transaction and transportation cost that

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are included in the transaction. The reason why the ASEAN countries do not trade among

themselves is because the price of resources is higher due to the higher tariff charged. This

showed the result of the currency outflow from the ASEAN countries to the non ASEAN

countries. Therefore, AFTA helps the ASEAN countries to trade the resources at a cheaper rate

due to a lower transaction and transportation cost. Malaysia will be benefit from the trade by

importing the resources we need at a lower price.

AFTA provide an opportunity to Malaysia companies to cooperate with ASEAN partners by

using each other’s resources more effectively. This will increase the ability of Malaysia

companies to target in a bigger market. Therefore it increase the trading activities of the

company as a they have bigger opportunities to trade in a multinational business trading

activities. It will increase the growth in economics of Malaysia and our country will become a

well known international trading centre.

AFTA also bring negative impact on the trade to Malaysia. This is because previously

Malaysia charged higher tariffs on the rubber that imported from Thailand to protect that

domestic rubber industrial. After reducing the tariffs on imported rubber, domestic rubber

industrial lose the absolute advantage. The rubber market become more competitive and

therefore the consumer may have more options in buying rubber because domestic rubber is no

longer the best option for them. The export of the rubber of Malaysia will be reduced.

For example, agriculture sector is an important economy sector in Malaysia which contributed

9.5% of GDP in 2004 out of which 62% was contributed by Crude Palm Oil (CPO). Crude Palm

Oil is still the main sources of Malaysia’s export income which was 4% of total export in year

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2004. Besides that, Malaysia stills the largest in the market share of CPO’s exporter which is

50% of market share in year 2004.

Rubber and logs also another 2 important sources of Malaysia’s export from the agriculture

sector. However, rice and rubber crops are mainly owned by poor Bumiputera and heavily

subsidized by the government. These subsidies are meant to alleviate their poverty. So, the

AFTA agreement tries to reduce trade barriers because the import duty of rice is the highest for

Malaysian import tariffs which is 40%.

AFTA also causes some effects to agriculture sector of Malaysia. First of all is shrinking

acreage of land under agriculture means that agriculture sector need to compete with other sector

for land when economy moves toward to industrialization. If the production cost of neighbor

country is cheaper like cost of land and labor. This make Malaysia must modify and adding

value to their product to compete with the other country. So, that has some changes in Malaysia’s

agriculture sector which is from small farming to corporate plantation business activities such as

Genting plantation and IOI group. This will lead to surplus products and pressure on domestic

product due to non tariff barriers.

Apart from that, AFTA also lead to poor productivity and quality of agricultural product of

Malaysia. This is because of slow pace of replanting of Malaysia. Replanting is important

because the productivity of palms that are more than 25 years is reducing and also increases the

cost of harvesting. Government also needs to focus on transforming traditional farming into

commercial farming because our agriculture sector is largely made up by traditional farming.

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Traditional farming lead to our country’s agricultural productivity is lower compare to other

countries.

In additional, AFTA also lead to labor shortage in Malaysia because farming is not an

interesting job in Malaysia. Many younger prefer work at city rather than be a farmer in village.

Nowadays, younger of Malaysia is lacking “gotong royong” spirit that needed in rural farming.

So, many plantations corporate hired many foreign workers to work for them mostly consisted

by Bangladeshis and Sri Lankans. There is a need to find a alternative way to reduce dependence

of labor and rely more on technology advancement for cost effective.

Next, we will talk about the impact of AFTA agreement on Malaysia’s automotive industry.

Malaysia has two national carmakers which are Proton and Perodua. Malaysia government wants

to protect their interest after introducing the AFTA. However, the protection given by Malaysia

in this development could prove to be a temporary reprieve.

After introducing the AFTA, all the parts and components that are needed to the car industry

will be affected including Malaysia's car industry. Non trade barriers like tariffs and custom tax

will be taken once the market is open.

From the research, we can found out that Indonesia and Thailand have already started to

reduce the tariffs for all automobile components. Only Philippines and Malaysia have not made

any move to reduce the tariffs in this sector.

The reason given by Malaysia Government is that the local manufacturers need time to

recover from the economic downturn to compete with other big car manufacturer like Toyota,

Honda and Nissan. The ASEAN countries have accepted the reason given. Currently, Malaysia

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Consumers are actually paying significant higher price for foreign car compare to its original

price which is very unfair for them.

Although protections are given to the national car maker, national cars are still selling at high

price, mainly due to the high production costs and lack of vendor efficientct, the future may see

imported cars gaining market share. Frost & Sullivan expects that imported vehicles like Honda,

Nissan, and Toyota are expected to become 30 to 50 percent cheaper. All these developments will

mean an increase in the number of foreign cars on the road. The impact will be felt in the region's

infrastructure. There will also be a glut of used cars in the market, as people trade in their cars for

cheaper, imported ones. This development could see motorcycle users shifting to using second

hand cars, thus, affecting the prospect of the two-wheeler industry in the region.

AFTA is a threat to local manufactures but it is an opportunity to many new Malaysian car

manufacturers. By introduce the AFTA. It gives them a pressure or maybe a change to improve

themselves by competing with the big manufacturers by making more quality and cheaper cars to

benefit the local consumers. Under protection, they will never improve and stay behind of other

manufacturers.

Overall AFTA for auto will drive the regional manufacturing integration and cost

competitiveness among ASEAN countries. It will be more technology transfer to this region and

more opportunity to the labour. Local companies benefit from the implication by producing part

for car that will be marketable to the ASEAN region.

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RECOMMENDATIONSFrom our research, we recommend that Malaysia should accurately adjust the tariffs on the

imported goods to a fair level that allowed the domestic manufacturer to compete against the

importers. The government should not over protect the domestic manufacturer by setting a higher

tariff for certain sector such as automobile and electronic equipments.

Through reducing the tariff on this sector, there will be more competition among the domestic

and foreign manufacturer. Under this situation, the domestic manufacturer will improve the

quality of the output and reduce their cost of production. For example, if Malaysia reduced the

tariff on the automobile, other ASEAN countries will also reduced their tariff on the imported

automobile from Malaysia. This will lead to an increased in the exported automobile as other

ASEAN consumers can purchase the automobile from Malaysia at a lower price.

In another hand, we recommend that ASEAN can take the European Union as an example in the

form of using the same currency. Therefore the ASEAN countries can eliminate the transaction

cost and currency volatility risk. And there will be a free trade between all the ASEAN countries.

So the ASEAN countries will have a price transparency in all of their goods and this will

increased the trade and reduced the costs to firm.

Based on the theory factor endowments, Malaysia should focus on products that they have

comparative advantage for example palm oil. Malaysia should take advantages of low tariffs of

the AFTA. Malaysia can think of importing those goods that Malaysia are not specialize at the

production of that goods and produce those goods that Malaysia have the absolute advantages on

producing that goods. For example, products related to palm oil and rubber.

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CONCLUSION

When we complete this assignment, we need to thanks to our lecturer and tutor Pn. Maznah. It

was because she let us choose the assignment which related to AFTA. We gain much more

knowledge on the power of AFTA and how it affects the economy of Malaysia and ASEAN

member countries.

Under AFTA, six members of the Association of Southeast Asian Nations (ASEAN) cut tariffs

on nearly 8,000 items. The six countries include Malaysia, Indonesia, Singapore, the Philippines,

Brunei and Thailand. Four of the less developed ASEAN nations including Cambodia, Laos,

Burma and Vietnam will have a further period to phase in the tariff cuts.

AFTA have bring a lot of benefit to the member countries, the main benefits which found out by

our group is consumer gain the most benefit. It was because AFTA has elimination of tariffs

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should result in product price reductions throughout ASEAN. For example, Consumers will

benefit from cheaper prices of goods given lower tariffs on a host of raw materials used by the

region's producers. Some of processing factories are expected to enjoy cheaper imported raw

materials in the face of the tariff elimination which help in cost reduction for increase market

competition.

At the same time, this Agreement help ASEAN countries' products gain access to a regional market

that incorporates many substantial advantages. One of the substantial advantage is it attract more

Foreign Direct Investment (FDI) to the member countries. Lastly, ASEAN will be integrated into a single

market which is an important point because the market will be stronger and larger with a high

population. Therefore, the export and investment sectors will generate higher potential in the long

term.

  REFERENCE 1. Chubashini Suntharalinga, the impact of AFTA on Malaysian economy and small scale

producers, viewed 1 march 2012, http://www.seacouncil.org/seacon/images/stories/publications/afta_malaysia.pdf

2. Goh Lim Thye, the impact of AFTA on Malaysian trade flow, viewed 1 march 2012, http://psasir.upm.edu.my/8318/1/FEP_2002_16_A.pdf

3. Azmi Shahrin Bin Abdul Rahim, Globalization, Trade Liberalization and the likely impacts of WTO and AFTA on the agriculture sector in Malaysia, viewed 1 march 2012, http://economics.dstcentre.com/Globalization

4. Tengku Mohd Ariff Tengku Ahmad and Ariffin Tawang, Evaluating the Effects of Trade Liberalization on Malaysian Agriculture with Emphasis on the Palm Oil and Paddy Sub-sectors, viewed 1 march 2012, http://www.asiadhrra.org/downloads/libmats/pdfs/agrinteg/Evaluating_the_Effects_of_Trade%20Liberalization_%20on_Malaysian_Agriculture.pdf

5. Republic of Philipines, THE ASEAN COMMON EFFECTIVE PREFERENTIAL TARIFF 

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SCHEME FOR THE ASEAN FREE TRADE AREA, viewed 29th Feb 2012, < http://www.tariffcommission.gov.ph/afta-cep.html>

6. Association of SouthEast Asian Nations, 2009, The ASEAN Free Trade Area (AFTA), viewed 1st March 2012, < http://www.asean.org/12021.htm>

7. Ministry of International Trade and Industry, 2008, Developments in the Implementation of the CEPT Scheme for ASEAN Free Trade Area (AFTA), viewed 1st March 2012, < http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_b5ec7532-c0a81573-aba0aba0-af01c157>

8. ASEAN Free Trade Area. View on 29 February 2012. http://en.wikipedia.org/wiki/ASEAN_Free_Trade_Area

9. AFTA. View on 29 February 2012. http://networkmalaysia.com/subtitle/articles_afta.htm

10. ASEAN Free Trade Area. View on 29 February 2012. http://www.worldtradelaw.net/fta/agreements/afta.pdf

11. AFTA. View on 29 February 2012. http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_8de83760-7f000010-72f772f7-f5047602

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School of Business Studies

Plagiarism Statement

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