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Moving Towards a Common External Tariff Regime in ASEAN Munich Personal RePEc Archive Moving towards a Common External Tariff Regime in ASEAN Lord, Montague J. ASEAN Secretariat December 2008 Online at https://mpra.ub.uni-muenchen.de/41154/ MPRA Paper No. 41154, posted 09 Sep 2012 18:23 UTC Mo ving to wa rds a Co mmo n Exte rna l Tariff Re g ime in ASEAN Capacity Building for the ASEAN Secretariat: Common External Tariff Regime ASEAN E06/08 Moving towards a Common External Tariff Regime in ASEAN Draft Final Report Submitted to InWEnt – International Weiterbidung und Entwicklung gGmbH and ASEAN Secretariat Submitted by Montague Lord International LLC PO Box 501197 Marathon, Florida 33050 United States December 2008 - i - Mo ving to wa rds a Co mmo n Exte rna l Tariff Re g ime in ASEAN Moving towards a Common External Tariff Regime in ASEAN Table of Contents Table of Contents ii List of Acronyms and Abbreviations iii List of Boxes, Figures and Tables vi Executive Summary vii 1. Background and Introduction 1 1.1. Background 1 1.2. Objectives and Outputs 1 1.3. Coverage 2 2. Moving towards a CET Regime in ASEAN: An Overview 4 2.1. Regional Trade Agreements 4 2.2. Potential Benefits of a Common External Tariff 5 2.3. Historical Developments of ASEAN Trade Arrangements 6 2.4. Free Trade Agreements and Implications for CET 7 2.5. Common External Tariffs in Other Regional Trade Arrangements 10 3. Option for a Common External Tariff 21 3.1. Existing Tariff Structures 21 3.2. The Optimal Tariff 23 3.3. Alternative CET Structures 24 3.4. Revenue Sharing and Compensations 25 4. Modeling Welfare Effects of an ASEAN Common External Tariff 29 4.1. Methodology for Estimating Welfare Effects 29 4.2. Estimates of the CET Welfare Effects under Alternative Regimes 29 5. Sequencing FTAs and a Common External Tariff Regime 35 5.1. Estimates of ASEAN FTAs before versus after a CET 35 5.2. Dynamic FTAs and CET Sequencing Effects 38 6. Designing and Implementing the CET 40 6.1. Key Issues for the CET Design and Implementation 40 6.2. Transition and Adjustment Issues for CET Implementation 42 7. Recommendations for Further Studies 45 Annexes A. The Empirical Model 47 B. Product Lines having Similar Tariffs Applied by ASEAN Member States 51 C. Welfare Effects of 6.1% CET on ASEAN Member States at HS 2-Digit Level 54 D. Meetings Held with Representatives of ASEAN Member States 58 - ii - Mo ving to wa rds a Co mmo n Exte rna l Tariff Re g ime in ASEAN List of Acronyms and Abbreviations AEC ASEAN Economic Community AFTA ASEAN Free Trade Area APEC Asia-Pacific Economic Cooperation ASEAN Association of Southeast Asia Nations ASEC ASEAN Secretariat ASEAN-6 ASEAN original signatories ASEAN-CLMV ASEAN Cambodia, Laos, Myanmar and Vietnam ASEM Asia-Europe Meeting CAP Common Agricultural Policy, EC CARICOM Caribbean Common Market CCCA Coordinating Committee for the CEPT implementation of AFTA CCT Common Customs Tariff CEPT Common Effective Preferential Tariff, ASEAN CET Common External Tariff COMESA Common Market of Eastern and Southern Africa CGE Computable General Equilibrium CTS Consolidated Tariff Schedules CU Customs Union DDA Doha Development Agenda DG Trade Directorate General of Trade, EC EAC Eastern African Community EC European Commission ECOWAS Economic Community of Western African States EEC European Economic Community EPA Economic Partnership Agreement EPZ Export Processing Zone ESCAP United Nations Economic and Social Commission for Asia and the Pacific EU European Union FAO Food and Agriculture Organization FDI Foreign Direct Investment FTA Free Trade Agreement FTAA Free Trade Agreement for the Americas GATS General Agreement on Trade in Services GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GNI Gross National Income GPA Government Procurement Agreement GSP Generalized System of Preferences GTAP Global Trade Analysis Project HS Harmonized System IMF International Monetary Fund InWEnt International Weiterbidung und Entwicklung gGmbH IPR Intellectual Property Rights ITA Information Technology Agreement ITC International Trade Centre LDCs Least Developed Countries - iii - Mo ving to wa rds a Co mmo n Exte rna l Tariff Re g ime in ASEAN MERCOSUR South America’s Southern Common Market MFN Most Favoured Nation NGO Non-governmental Organization NTB Non-Tariff Barriers RoO Rules of Origin RTA Regional Trade Agreement SACU South African Customs Union SADC Southern African Development Community SEOM Senior Economic Officials Meeting, ASEAN SME Small and Medium-Size Enterprise SPS Sanitary and Phytosanitary Measures TBT Technical Barriers to Trade TOR Terms of Reference TREATI Trans-Regional EU-ASEAN Trade Initiative TRIPs Trade-related Intellectual Property Rights TRTA Trade-related Technical Assistance UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme WB World Bank WCO World Customs Organization WTO World Trade Organization - iv - Mo ving to wa rds a Co mmo n Exte rna l Tariff Re g ime in ASEAN List of Boxes, Figures and Tables Boxes 2.1 Free Trade Agreements and Negotiations Involving ASEAN and the Member States 8 2.2 The 2002 SACU Revenue-Sharing Formula 14 3.1 Characteristics of Member States’ Tariff Structure 22 Figures 4.1 Total Change in ASEAN Consumer Welfare and Government Revenue Changes 31 Tables 3.1 Profile of Tariffs in ASEAN Member Countries 23 4.1 Change in Government Revenue from MFN Tariffs Applied to Non-ASEAN Imports under Alternative Common External Tariffs 30 4.2 Change in Consumer Welfare from MFN Tariffs Applied to Non-ASEAN Imports under Alternative Common External Tariffs 32 4.3 Welfare Impact of 6.1 Percent CET on ASEAN Member States 33 5.1 Percent Distribution of ASEAN Country Imports from Actual and Forthcoming ASEAN-FTAs, ASEAN Countries and Rest-of-World, 2006 35 5.2 Welfare Impact on ASEAN Member States: Moving from Pre-CET to CET Rate 36 5.3 Welfare Impact of 4.2% CET Rate on ASEAN Member States 37 5.4 Welfare Impact of 4.2% CET Rate and FTAs on ASEAN Member States 37 5.5 Welfare Impact of FTAs on ASEAN Member States 38 5.6 Welfare Impact of FTAs and 4.2% CET on ASEAN Member States 38 C.1 Impact of Uniform CET Rate of 6.1 Percent on Government Revenue from Non-ASEAN Country Imports 54 C.2 Impact of Uniform CET Rate of 6.1 Percent on Consumer Welfare from Non-ASEAN Country Imports 56 - v - Mo ving to wa rds a Co mmo n Exte rna l Tariff Re g ime in ASEAN EXECUTIVE SUMMARY Motivation for Study – Under the ASEAN Economic Community Blueprint signed at the 13th ASEAN Summit in November 2007 in Singapore, ASEAN Leaders agreed to the realization of a single market and production base by 2015. The Coordinating Committee for the Implementation of the CEPT for AFTA (CCCA) was tasked by the Senior Economic Officials Meeting (SEOM) to do further work on the possibility of establishing an ASEAN common external tariff (CET), a process that is likely to involve a number of challenges since existing MFN tariffs of ASEAN Member States vary widely. Objective – The objective of this study is to provide a preliminary analysis on a range of CET options that could be adopted by ASEAN and to quantitatively assess their implications for each ASEAN member state and the region as a whole. The results of the study are intended to assist the ASEAN Secretariat and the ASEAN member states in considering options under deliberations by the CCCA, which will eventually be presented to the Senior Economic Officials Meeting (SEOM) for its deliberation on the application of a CET as a long term objective of economic integration in ASEAN. A. Overview and CET Experiences in Other Regions Stages of Regional Trade Agreements – Regional blocs are based on trading arrangements that aim to harmonize rules and regulations governing trade flows between member states and the rest of the world. The stages of these arrangements normally consist of the creation of, first, a free trade area with a zero tariff on intra-regional trade and the retention of individual member tariffs on third countries; second, a customs union with free trade between members and a common external tariff; third, a common market with unrestricted mobility of labor and capital, as well as goods and services; and finally, an economic union that harmonizes macroeconomic and sector policies. CETs in Other Regional Trade Arrangements – There are several customs unions operating with CETs throughout the world. The European Union is undoubtedly the most well-known and has moved beyond a customs union to become a common market on a path to becoming an economic union. However, the range of existing customs unions with CETs includes several in Africa, Latin America and Central Asia. European Union – In 1968 the founding members of the European Union (EU) agreed to the common customs tariff (CCT), which was set at the unweighted average of the six member states’ tariff rates. The transition to the CCT included provisions that (a) each member state should move by three stages at least by 30 percent, 30 percent and 40 percent closer to the common external tariff rates; (b) the European Commission (EC) had the right to authorize any member states with special difficulties to postpone the adjustments of duty rates towards the common customs tariff for a limited period of time; and (c) the CCT should be applied in its entirety by the end of the transitional period. In the financing arrangements, member states were required to transfer part of their customs revenue to the EC budget, as well as making contributions to the EC budget according to their gross national income (GNI) shares.
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