Discuss about the International Business for ASEAN Free Trade Area.
The ASEAN Free Trade Area (AFTA) is an agreement of trade bloc conducted by Association of Southeast Asian nations that takes care of the local manufacturing in all ASEAN countries. Here in this report, the advantages and disadvantages of Thailand and Brunei Darussalam will be analyzed
Advantages of Thailand
The location of Thailand always gives them positive results. It acts as the gateway to Asia, which is the largest growing economy at present. According to Aggarwal and Urata (2013), Thailand enjoys easy trade with China, India, and with all the countries included in the Association of Southeast Asian Nations (ASEAN). Thailand, being one of the founder members of ASEAN has contributed in the formation and growth of the ASEAN Free Trade Area (AFTA). Surely, Thailand is among one of those countries that enjoy some advantages from AFTA. Nguyen (2016) discussed, as per the advice given by The International Institute for Trade and Development to Thailand, they have focused on preparing itself as a major economic hub in terms of both private and public sector. According to Findlay (2015), the country should focus on complete liberalization of its public and private sectors from AFTA. Plummer et al (2016) discussed, it is found that from the last year, the economy of Thailand has improved its dismal 0.8% because of the expansion of the service and decline in contraction in product exports. According to Area et al (2013), some other benefits that Thailand enjoys from Free Trade Agreement are as follows:
More Thai investment in China: From ASEAN FTA negotiations, the most advantageous business areas are hospitality, retailing, restaurants, logistics, tour companies, and education. The Asian-China Free Trade Area arrangement is instrumental in liberalizing the service sectors. According to Liu and Jayanthakumaran (2016), with the 7.4% growth in the service sector of China, it has become a potential market for most of the Thai firms. As discussed by Hayakawa et al (2013), it is a fact that Chinese service sector has faced slow growth since the past few years; it will grow in future due to some effective government measures. In future, the income of both the rural and the local people will improve the condition. According to Kawai and Wignaraja (2013), the national development plans, initiated by the government will accelerate the process of economic growth as it aims to increase the contribution of the service sectors from 40% to 50%. Such a situation will take place by 2020. This will enable Thai business to take advantage of the expanding Chinese market. Tourism is one such sector that can be exploited. Other sectors include Thai spas along with their medical herbs, and natural products. These service industries hold high potential to expand itself into Chinese market. Regulations for investment in the Chinese market have been made more flexible by through FTA. After the second round of negotiations, the Thai entrepreneurs will get the chance to expand their business in China with introduction of 12 new service sectors. As discussed by Chandra (2015), at the same time, investing in Thai shipping and construction will open up new opportunities for the Chinese investors too.
According to Postigo (2014), tariff reduction with products in India: The India-ASEAN FTA is instrumental in tariff reduction on products including machinery, chemicals, electronics, and textiles. The 80% of total trades between India and ASEAN countries are benefitted from these reduced tariffs. Within 2013 to 2016, the tariff was reduced to zero. This ASEAN-India FTA is instrumental in accelerating the value of trade. Urata (2014) discussed, it has raised the trade between India and Thailand to $10 billion. However, the estimation was $6 billion. The major exported products to Thailand are metal ores, gemstone, steel, products, chemicals, pharmaceutical products, and vegetables. The major imports to India from Thailand are electric goods, crude oil products, air-conditioning machinery, television receivers, and plastic products. However, India and Thailand have agreed on changing Tariff sub-heading and local content of 35% to consider the origin of products. In addition, they have agreed on Product Specific Rules (PSR).
Disadvantages of Thailand:
Thailand is concerned about effect of FTA on some agricultural products including palm oil and rice. Such products are included into the country’s sensitive product list. According to Kim et al (2016), it carries tariff of 5%. However, the main challenge of Thailand is to develop the skills and products to meet the demands of the customers. They should focus more on brand awareness to increase the demands for Thai products in the global market.
Advantages of Brunei Darussalam
It is found that agriculture and fisheries have become major products for the economic growth of Brunei Darussalam in 2015. However, the economy is expected to grow with the increase of oil and gas production. According to Findlay (2015), the 11 FTAs are helping Brunei Darussalam. The global oil glut has underscored all endeavours of reducing oil export dependency of Brunei Darussalam through introducing diversification measures. It has focused on increasing manufacturing and industrial exports to develop local trade. For legal and regulatory reforms, the authorities are focusing on new Foreign Direct Investment (FDI). FTA has helped Brunei Darussalam to expand its export market in South Korea, Japan, and Thailand. As a result, the amount of export is 30.8%, 26.2%, and 11.3% respectively. The total export in the oil and gas industries in 2015 was 92%. The primary imports include machinery products and transport equipments.
Chandra (2015) discussed, the two major negotiations are- Trans-Pacific Partnership (TPP), and Bilateral Tax Information Exchange Agreement. FTA has made the Foreign Ownership system in Brunei Darussalam flexible. It is not restricted here. To discuss the incentive policies, the FTA has made the rule that some companies that deal machinery, component parts, equipments, and accessories and building structure are exempted import duties. Another benefit is that the government is hoping an expansion of in the high-tech industries of this country. The trade partnership with India has also become advantageous to them. The Environment Cooperation Agreement and Labor cooperation MOU is the agreement that is instrumental in promoting environmental and labour practices in this country.
Disadvantages of Brunei Darussalam:
It is a fact Brunei is small market. Therefore, they need more FDI support. According to Chandra (2015), they should focus on developing and exploiting the Aerospace and agriculture and processed food sectors because these are the two major areas in the local market. The small geography and population is the reason behind its avoidance towards large-scale defence equipment purchase. The situation can be improved through FTA. The agreements should encourage partnerships between foreign suppliers and local companies. The areas that can help in developing the economy and expansion of the business include education, agriculture, and Defence and security.
The Most Benefitted Country and its Sector
Singapore seems to be the most advantageous country enjoying the negotiations of FTA. Till now, 20 FTAs have been implemented and they have 31 trading partners. The largest trade and investment partner of Singapore within Asia is India and the particular business sector that has improved is financial and legal services. According to Findlay (2015), the key benefits are as follows:
- Restrictions over wholesale banking licences are eased and an improved operating environment for all kinds of financial services is made.
- Indian law firms and Indian law degrees are given due recognition in Singapore.
- Through FTA, the residency requirements for Indian professionals in Singapore are made easy. Any short term entry to Singapore for business purpose of the Australian people is also made possible. It has enhanced the business situation.
- Paperless trading is also given importance to reduce any issues of business related transactions.
The economic partnership between Singapore and Indonesia is also a major negotiation. It allows free trade flows that help the export to flourish. As a result, Singapore has developed immensely in past few years. Singapore has become one of the largest export destinations for Indonesia. Findlay (2015) discussed, the contribution of the agreement in the sectors of services is as follows:
- Free entry to the business visitors and short-term residency purposes in Singapore
- Reduction in business costs and red tape around the processing of customs, and quarantine standards are major steps.
- The negotiation has made the purchase of services from Singapore by the people of New Zealand easy.
The most Non-Benefitted Country and its Sector
FTA, however, does not benefit the poor countries. The expensive nature of the FTAs and unfairness from the part of the authorities are the main reasons of this. Myanmar is one such country. Findlay (2015) opined, this country is one of the poorest countries in the worlds. Even after being a part of ASEAN Free Trade Agreements, the country suffers from trade deficit. The sectors that need development are education and technology. Myanmar is lagging behind due to a large section of its uneducated workforce. AFTA has not taken proper initiatives to enhance its foreign relations with other Asian countries. Most of the goods cross the border of Thailand. The authorities should focus on developing infrastructure. The railways are old. In addition, inflation is a major problem for the growth of its economy. According to Findlay (2015), AFTA should focus on Myanmar’s free trade with India and Malaysia. Major import and export across these nations can develop Myanmar’s economy.
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Findlay, C. ed., 2015. ASEAN and Regional Free Trade Agreements. Routledge.
Hayakawa, K., Hiratsuka, D., Shiino, K. and Sukegawa, S., 2013. Who Uses Free Trade Agreements?. Asian Economic Journal, 27(3), pp.245-264.
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