AFTA: The upcoming challenges to the Malaysian automotive industry

AFTA is the strategic key
The AFTA Agreement was signed in 1992 by six ASEAN members at that time to enhance economic co-operation among them. The member countries plan to reduce inter-regional tariffs on all manufactured items, including capital goods and processed agricultural products and remove non-tariff barriers over 15 year period beginning in 1993. The objective was to increase the ASEAN region’s competitiveness in the global market. In 1994 the heads of ASEAN Government decided to accelerate the time frame for the implementation of AFTA. They agreed to reduce the time frame from 2008 to January 1 2003 as the implementation date. The decision to accelerate the implementation of AFTA from the initial target of 2008 to year 2003 is a clear indication of the seriousness in which ASEAN regards the achievement of a free trade area in the region. This can be seen as part of ASEAN’s contribution to the general trend towards global trade liberalisation. Under AFTA tariffs on almost all products traded by ASEAN’s leading trading nations will be down to 0-5 percent in less than two years. AFTA is implemented using the Common Effective Preferential Tariff (CEPT). More than 1000 products have been included in this scheme. Non tariff barriers are also to be eliminated completely for trade among the ASEAN countries by the year 2003.

For automobile industry all the components and parts that are needed to the car industry will be affected. From tires till the engines are included in the CEPT list. Completely assembled cars are also included in this scheme. Non trade barriers like custom tax and tariffs will be taken once the market is open. Currently from my research I found out Thailand and Indonesia have already started to reduce the tariffs for all automobile components. Only Malaysia and Philippines have not made their move to reduce tariffs in this sector.

As a result of this Malaysia had requested AFTA to be deferred to 2005 for the car industry. The reason given was that the local manufacturers need time to recover from the economic downturn. ASEAN countries have agreed for this request. Actually they are given opportunity to the local car manufacturers Proton and Perodua to prepare themselves for AFTA. Currently consumers pay significantly higher price for foreign car compare to its original price.

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 labor. Local companies to benefit from the implication by producing part for car that will be marketable to the ASEAN region