Introduction

In 1992 ASEAN signed the Agreement on the Common Effective Preferential Tariff (CEPT) Scheme to form AFTA. Upon implementation of the agreement by 2008, ASEAN should become a free trade area (FTA) with tariffs on all commodities covered ranging between zero and 5 per cent and with all nontariff barriers (NTBs) and quantitative restrictions eliminated. Capital goods are also included.

According to member countries, the raison d’être of AFTA is twofold: first, to sustain ASEAN's competitiveness, fostering greater efficiency as an export promotion location; and second, to respond to increased regionalism in international trade using the FTA to ensure continued market access. As with most regional integration arrangements (RIAs), the ultimate goal is to promote economic growth.

The experience with RIAs among developing countries is characterized, with few exceptions, by large doses of enthusiasm injected at the beginning of the market integration process, followed normally by implementation failures and meagre results in terms of increased intra-regional trade. From this viewpoint, ASEAN's experience with its preferential trading arrangement (PTA) has not been any different. Will ASEAN's experience with AFTA make a distinct difference?

This chapter views AFTA from a comparative perspective. It poses two questions: (1) Is AFTA in its current form likely to fulfil its objectives?; and (2) What should ASEAN countries do to attain the objectives proclaimed?

Section II reviews the regional integration experience of a number of FTAs and customs unions (CLJs) among developing and developed nations. Section III develops a model that contains the major stylized factors that the experience with RIAs has shown to matter for a successful integration process. The model is used in section IV to analyse whether AFTA, in its current form, is sufficient for attaining its objectives. Section V discusses whether AFTA is necessary while section VI contains the conclusions and policy implications.