AFTA: Impact and reaction
It has often been said and proven that free trade results in an increase in world output, through specialisation of each country's production where it has a comparative advantage in. The creation of AFTA by ASEAN members was meant to remove the protective barriers to the various manufacturing industries that have so far impeded the growth of the ASEAN economy. The CEPT scheme was also signed as a mechanism to reduce import tariffs to 0-5 percent within 10 years starting from 1 January 2003 and eliminate non-tariff barriers. While the creation of AFTA means that consumers will get to enjoy more goods, AFTA has also affected the manufacturing sector, especially in profit margins and increased competition from foreign competitors. This essay intends to highlight the fact that AFTA in the long run will result in more negativity to the economy and not all good will arise out of the changes in the manufacturing sector, particularly the motor vehicle industry. Firstly, this essay will discuss the changes resulting from the implementation of AFTA, and its effects particularly on the motor vehicle industry. Secondly, the Malaysian reaction to the changes discussed and recent policy actions
Companies have started on forging strategic business alliances that would see an increase in total production. Currently, the import duty for completely built-up (CBU) motorcars range around 140 to 300 percent, and similarly high import taxes apply for other motor vehicles. The problem with reducing tariffs is that the protective elements of tariffs would be eliminated. Through the multiplier effect, GDP is reduced too. 2003- Government announces in budget 2004 that import duties will be removed, instead levies excise duty to prevent loss of government revenue. Meanwhile, the government has successfully lobbied to delay implementation of AFTA until 1 January 2005. The ASEAN Industrial Cooperation Scheme (AICO) was introduced.
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Acceptance Essays
