The AFTA-CER linkage: forging a new direction in relations with ASEAN.

• Author: Smith, Anthony
• Position: Association of Southeast Asian Nations, ASEAN Free Trade Area, Australia-New Zealand Closer Economic Relations Agreement

Anthony Smith foresees the AFTA-CER dialogue becoming an important element in New Zealand's foreign policy.

In January 1996 Goh Chok Tong, Prime Minister of Singapore, was quoted by the Australian Financial Review as saying that Australia and New Zealand will one day join the Association of Southeast Asian Nations (ASEAN).(1) New Zealand's Foreign Minister, Don McKinnon, was reported as being kindly disposed to this idea. The other ASEAN nations, however, quickly moved to say that ASEAN was primarily a grouping for South-east Asia, and it now seems that Goh's comments may have been taken out of context. In any event, while formal membership of ASEAN is unlikely, Australia and New Zealand will have a lot more to do with ASEAN in the future. The growing dialogue between the ASEAN Free Trade Area (AFTA) and the Australia-New Zealand Closer Economic Relations Agreement (CER) may provide Australia and New Zealand with a `back-door' to ASEAN, giving Australasia the benefits of greater two-way trade with the countries of South-east Asia while still being outside the grouping.

The AFTA-CER dialogue process has been undertaken for reasons of mutual interest to both sides and seems to be an ideal way of preparing, in a microcosm, the member economies for the greater liberalisation and facilitation of trade that will occur in the Asia-Pacific region under the Asia-Pacific Economic Co-operation (APEC) forums. Australia and New Zealand are both enthusiastic supporters of the regional push for free trade, quietly hoping that `open regionalism' will be furthered, but this particular link with AFTA represents a new dimension to CER: negotiation with a third party. This linkage was, on 9 September 1995, described by the then Trade Negotiations Minister, Philip Burdon, as `a major milestone in . . . our relations with the dynamic economies of South East Asia.(2)

To date the progress is embryonic but there seems to be a willingness on both sides of the negotiating table to ensure that this dialogue grows to facilitate greater levels of trade. The question is, what exactly will this linkage entail and what will both sides gain from the agreement? After an examination of the AFTA-CER dialogue to date, this article focuses on what New Zealand can gain from this process. For New Zealand, as a trade dependent nation, this dialogue could facilitate greater trade links with South-east Asia. Furthermore, this series of talks is a good example of the type of dialogue that is emerging between various trading areas.

Unique arrangement

Australia and New Zealand have consistently opposed the idea of forming a trading bloc that limits third country trade, instead choosing to form a free trade area. CER has gone further in liberalising commodity and service trade and the free movement of people than any other equivalent agreement. In terms of free trade areas, Australia and New Zealand have created a trading arrangement that is unique and bound to be studied by other nations wishing to emulate (if only partially) the creation of seamless markets. The idea of interfacing CER with other like-minded free trade areas is one that finds a willing audience in both Australia and New Zealand. To push the goal of free trade, officials from both countries are happy to promote the idea of liberalisation of tariffs and harmonisation of standards and regulations to any country or grouping that wishes to entertain the facilitation of greater trade.

In January 1992, the ASEAN Free Trade Area was established during an ASEAN Forum meeting in Singapore. Starting in 1993, AFTA would establish a free trade area by 2008. Since the inclusion of Vietnam in ASEAN in 1995,(3) the AFTA agreement covers a combined population of more than 420 million people. The main vehicle is the Common Effective Preferential Tariff (CEPT), in which commodities will be placed on a list in order to eliminate tariffs, except those specifically excluded as `sensitive'. In September 1994, at the fifth AFTA Council at Chiang Mai, Thailand, it was decided to reduce AFTA's time frame to ten years, thereby establishing the end date as 1 January 2003. ASEAN has urged the members to `expand the number of items with tariff rates reduced to 0-5% by the year 2000 and maximise the number of items to be reduced to 0% tariff level by the year 2000.' If member states heed this call then the goal of free regional trade (albeit only in terms of reduced tariff barriers) is more likely to be achieved by 1 January 2003.

Two objectives

AFTA has two objectives: first, the creation of intra-ASEAN trade; and second, the facilitation of greater foreign investment in the region. The letter objective is particularly important given the emerging challenge of China as a destination for foreign capital. There is also an `AFTA plus' process, which includes: agreements on non-tariff barriers (notably standards and regulations), intellectual property rights, competition laws, information technology, and the rapidly expanding service trade. Significantly these are issues that have already been addressed by Australia and New Zealand in CER. For the ASEAN nations the `CER experience' provides a powerful impetus to set up a dialogue to learn about ways of creating a more comprehensive free trade area.

There is growing co-operation between the two free trade areas. As shall be seen below, this co-operation involves areas of mutual gain for both sides which provides the impetus for the two free trade areas to form some kind of linkage -- even if it is modest at this point. In a sense this is a good...