Trade Liberalization in ASEAN 9789814376211

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TRADE LIBERALIZATION IN ASEAN An empirical study of the Preferential Trading Arrangements

Gerald Tan

Research Notes and Discussions Paper No. 32 INSTITUTE OF SOUTHEAST ASIAN STUDIES 1982

Published by the Institute of Southeast Asian Studies, Singapore this publication may be All rights reserved. No part of reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 1982 Institute of Southeast Asian Studies

ISSN 0129-8828 ISBN 9971-902-46-X

CONTENTS

Page

LIST OF TABLES

v

PREFACE

viii

ACKNOWLEDGEMENTS

xi

I

INTRODUCTION

1

II

THE PREFERENTIAL TRADING ARRANGEMENTS

3

III

A BRIEF LITERATURE REVIEW

6

IV

LONGER-TERM IMPLICATIONS OF THE PTA

12

V

CONCLUSION

43

APPENDICES

46

1 2 3 4 5 6

46

1-digit BTN Product Categories Indonesia: Distribution of Preference Items Malaysia: Distribution of Preference Items Philippines: Distribution of Preference Items Singapore: Distribution of Preference Items Thailand: Distribution of Preference Items iii

49 51 53 55 57

Page

7 Indonesia: Distribution of Preference Items at the 2-digit BTN Level 8 Malaysia: Distribution of Preference Items at the 2-digit BTN Level 9 Philippines: Distribution of Preference Items at the 2-digit BTN Level 10 Singapore: Distribution of Preference Items at the 2-digit BTN Level 11 Thailand: Distribution of Preference Items at the 2-digit BTN Level 12 Indonesia: Major Preference Items 13 Malaysia: Major Preference Items 14 Philippines: Major Preference Items 15 Thailand: Major Preference Items 16 Singapore: Major Preference Items 17 Indonesia: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group 18 Malaysia: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group 19 Philippines: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group 20 Singapore: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group 21 Thailand: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group BIBLIOGRAPHY iv

59 60 61 62 63 64 66 69 71 73 76 81 85 90 95 99

LIST OF TABLES

Page

Distribution of Preference Items of ASEAN Countries according to 1-digit BTN Categories

14

ASEAN: Zero-order Correlation Coefficients between the Distributions of Preference Items of ASEAN Countries (1-digit BTN, n = 10)

16

Distribution of Preference Items of ASEAN Countries according to Tariff Cuts

17

4

ASEAN:

19

5

Indonesia: Distribution of Preference Items offered by other ASEAN Countries in relation to Indonesia•s Major Exports

21

Malaysia: Distribution of Preference Items offered by other ASEAN Countries in relation to Malaysia•s Major Exports

22

Philippines: Distribution of Preference Items offered by other ASEAN Countries in relation to Major Exports of the Philippines

23

1

2

3

6

7

Distribution of Preference Items

v

Page

8

9

10

11 12

13

14

15

16

Singapore: Distribution of Preference Items offered by other ASEAN Countries in relation to Singapore•s Major Exports

24

Thailand: Distribution of Preference Items offered by other ASEAN Countries in relation to Thailanct•s Major Exports

25

Zero-order Correlation Coefficients between the Distributions of Preference Items of ASEAN Countries (2-digit BTN, n = 99)

27

Summary of Characteristics of Major Preference Items (2-digit BTN)

28

Zero-order Correlation Coefficients between the Distributions of Preference Items of ASEAN Countries (7-digit BTN 84 items, n = 45)

32

Zero-order Correlation Coefficients between the Distributions of Preference Items of ASEAN Countries (4-digit BTN, n = 857)

33

Indonesia: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group

35

Malaysia: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group

37

Philippines: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group

38

vi

Page

17

18

Singapore: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group

40

Thailand: ASEAN Import and Export Shares of Preference Items in the BTN 84 (Machinery) Group

41

vii

PREFACE

Studies of the impact of the ASEAN Preferential Trading Arrangements (PTA) on i ntra-ASEAN trade usually report that only very small increases are likely to follow as a result of preferential tariffs. It is important not to read too much into this, since, in all the studies which have been carried out, the estimated increase in intra-regional trade depends critically on the import demand price-elasticities used. As these elasticities are usually estimated at the one-digit SITC product level, they are unlikely to be accurate measures of the responsiveness of the seven-digit PTA items to changes in price. Even if the very sma 11 estimated increases are taken at their face value, it is important to note that 1arge increases in i ntra-ASEAN trade should not be expected to occur as a result of the PTA, particularly in the early years of its implementation as the member-countries of the Association of Southeast Asian Nations (ASEAN) enter cautiously into this new form of regional co-operation. Instead, the PTA should be viewed as the beginning of an era in which deeper and wider tariff cuts would be made, once the tariff negotiating machinery has been set up and institutionalized. In the long term, tariff cuts under the PTA would stimulate regional specialization according to comparative advantage and thus encourage viii

an allocation of regional resources which would then give rise to greater intra-regional trade. This is the focus of the present study. An analysis of the kinds of products for which tariff preferences have been granted shows that all the ASEAN countries are concentrating their tariff preferences in three broad product groups -- Organic Chemicals, Inorganic Chemicals, and Machinery. This similarity in the distribution of the preference lists of the ASEAN countries occurs up to the four-digit level of product classification, but virtually disappears at the seven-digit level. This suggests that the 1anger-term impact of the PTA wi 11 be to encourage regional specialization and greater intra-regional trade primarily within these three broad product groups. However, the likelihood of this potential being realized will depend on whether ASEAN member-countries have the capability to produce these products for the competitive export market. Taking machinery products as an illustrative example, an analysis of the import as well as the export data of Malaysia and Singapore indicates that the potential for increased intra-ASEAN imports by the two countries is small. Large proportions of their machinery preference items are currently not exported by the other ASEAN countries. Of the small proportions that are exported, Malaysia and Singapore are already taking large shares. It is therefore unlikely that the PTA will have any significant impact on the intra-ASEAN imports of these two countries. In any case, large proportions of the preference i terns of Ma 1ays i a and Singapore a1 ready have zero tariffs; thus, their inclusion in the PTA will not affect their relative prices. For the other three ASEAN countries -- namely, the Indonesia, the Philippines and Thailand prospects for increased i ntra-ASEAN imports are ix

better. A1though there are 1arge proportions of the preference 1i sts of Indonesia, the Philippines, and Thailand which the other ASEAN countries do not currently export, there are also large proportions which are exported. And si nee the import shares of Indonesia, the Philippines, and Thailand for these items are currently zero, the potential for increased intra-ASEAN imports through trade diversion exists. However, most of the increase in imports is likely to come from Malaysia and Singapore as these are the two ASEAN countries which are likely to have the capacity to export the products concerned. It thus appears that the 1anger-term impact of the PTA is likely to be an increase in intra-regional trade in a very limited number of broad product In addition, the existing structure of groups. regional specialization is likely to be reinforced rather than changed, with Malaysia and Singapore supplying most of the other ASEAN countries' increases in intra-regional imports.

Gerald Tan

X

ACKNOWLEDGEMENTS

This study was carried out during the first half of 1981 when I was a Visiting Fellow at the Institute of Southeast Asian Studies (ISEAS) as well as at the Economic Research Centre (ERC) in Singapore. I would like to thank Professor Kernial S. Sandhu, Director of ISEAS, and Dr Pang Eng Fong, Director of the ERC, for making it possible for me to carry out my work at their institutes. I would also like to thank the staff at both institutes for assisting me in various ways and for providing me with a congenial and stimulating environment in which to work. Miss Ooi Guat Tin, Research Associate of the ASEAN Economic Research Unit, ISEAS, and Professor Heinz Arndt, who was a Research Fellow at ISEAS during the time that I was there, made many helpful suggestions during the many discussions I had with them. Dr Wilfreda Arce, Senior Research Fellow at ISEAS, also spent many hours listening to my research problems and helped in clarifying several issues. Various officials at the Ministry of Trade and Industry, Singapore, provided me with data as well as other information pertaining to the Preferential Trading Arrangements. xi

While acknowledging the assistance received from all these people, the final responsibility for this study rests entirely with me. Gerald Tan

xii

I

INTRODUCTION

This paper presents an analysis of all the products which have been exchanged by the countries of the Association of Southeast Asian Nations (ASEAN) under the Preferential Trading Arrangements (PTA). At present, 6,581 products have been granted preferent i a 1 tariffs by the ASEAN countries (Osman 1981) • However, data has been made av a i 1 ab 1 e only for 4,936 products (at the seven-digit BTN level of classification), comprising the first seven batches of items for which tariff reductions have been agreed upon. The aim of this study is to examine whether the kinds of products for which tariffs have been reduced, as well as their distribution in the preference lists of the ASEAN countries, are likely to have the intended effect of increasing intra-ASEAN trade through regional specialization of economic activity. This study is therefore different from existing studies which usually apply estimated import demand price-elasticities to estimated price reductions as a result of tariff cuts, in order to arrive at estimates of the increase in i ntra-ASEAN trade generated by those tariff cuts. Most studies of this kind show that the estimated increase in intra-ASEAN imports is very small. This is primarily due to the fact that the import levels of the 1

products eligible for preferential tariffs under the PTA is usually low, and in addition, the estimated import demand price-elasticities are usually very sma 11. It is, however, important not to read too much into the very small increases in intra-ASEAN trade reported by these studies. As will be discussed in Section III, the estimated increases in intra-ASEAN trade depend critically on the import demand price-elasticities used, but since these are usually estimated at the one-digit BTN level, the import demand price-elasticities of the seven-digit BTN products under the PTA may be underestimated by a considerable margin. In any case, tariff reductions under the PTA are not expected to generate large increases in intra-ASEAN trade in the initial stages of the scheme s i nee both the width and the depth of the tariff cuts agreed upon have been kept deliberately small as ASEAN wished to enter the scheme cautiously. The enthusiasm for the scheme rests more on the view that the PTA, through the institutionalization of the tariff negotiating machinery, represents the starting point for deeper and wider tariff cuts in the future which wi 11 , in the 1anger term, increase i ntra-ASEAN trade significantly through the encouragement of regional specialization of economic activity based on comparative advantage. This aspect of the PTA is the focus of the present study. By ex ami ni ng the nature of the products for which tariff preferences have been given, as well as their distribution in the preference 1i sts of the ASEAN countries, some additional insight into the probable effects of the PTA on i ntra-ASEAN trade in the 1anger term may be obtained. Section I I presents a brief account of the PTA. Section III contains a brief review of existing studies while Section IV presents the results of the present study. Conclusions and some policy implications are drawn in Section V. 2

II

THE PREFERENTIAL TRADING ARRANGEMENTS

The Agreement on Preferential Trading Arrangements was signed by the ASEAN countries on 24 February 1977 in Manila. The stated aim of the PTA is to encourage greater intra-region a 1 trade through the granting of 1ong- term quantity cant racts, preferent i a1 terms for the financing of imports, preferential procurement by government agencies, preferential tariffs, and the liberalization of non-tariff barriers in intraregional trade. The main instrument for trade liberalization that has been applied so far is the granting of tariff preferences. Under present arrangements, each ASEAN country has agreed to offer 800 new tariff preferences each year. These take the form of either a five-year commitment not to increase existing tariffs, or an actual reduction in the existing tariff rates. Prior to April 1981, most tariff reductions were of the order of 10%. However, after this date a 11 items with tariff reductions of 1ess than 20% wi 11 have their tariff reductions set at 20%. Those with tar.iff reductions of between 20 and 25% will have their tariff reductions set at 25%. Other tariff reductions will remain unchanged. The "product-by-product" approach which has characterized tariff negotiations thus far has now 3

been complemented by "across-the-board" tariff reductions for imports of certain values. In April 1980, the ASEAN countries agreed to reduce by 20% tariffs on all imports into the ASEAN countries which had values of less than US$50,000 each in 1978. In May 1981, this ceiling was raised to include all imports which had values of below US$500,000 each. In addition, the ASEAN countries agreed to look into the feasibility of raising the ceiling further to include imports which have values of less than US$1 million each. These "across-the-board" tariff reductions are, however, subject to the exclusion of "sensitive items" in order to protect certain industries of member- countries. In addition, tariff concessions may be suspended if imports enjoying preferent i a 1 tariffs threaten "serious injury" to domestic industries; or if a country has serious balance- of- payments difficulties; or if a country needs to limit exports in order to ensure sufficient domestic supplies; or if a country feels that one or more member-countries is not abiding by the rules of the PTA. In order to qualify for preferential tariffs under the PTA, various rules of origin have to be satisfied. Products for which preferential tariffs may apply fall into two categories. In the first category are products which are "wholly produced or obtained" in ASEAN exporting countries. These include mineral and agricultural products, live animals, products obtained from animals, from hunting or fishing, from sea fishing, products made on board factory ships, used articles fit only for the recovery of raw materials, waste and scrap from manufacturing operations, and other goods made exclusively from such products (Department of Trade 1981, p. 2). The second category consists of products which are "not wholly produced or obtained" in the ASEAN

4

For these products, the exporting countries. non-ASEAN content must not exceed 50% of f.o.b. value ( 40% in the case of Indonesia) , and the fi na 1 stage of manufacture must be performed in the ASEAN exporting countries (Department of Trade 1981, p. 3). There is also a "cumulative rule of origin" which says that products which use for their manufacture imports which are themse 1ves subject to tariff preferences must have an aggregate ASEAN content of not less than 60% of f.o.b. value (Department of Trade 1981, p. 3).

5

III

A BRIEF LITERATURE REVIEW

Owing to the recent implementation of the PTA, relatively few studies on the impact of tariff cuts on intra-ASEAN trade have been done. In one of the earliest studies on the subject, Armas (1978) estimated the direct effects of a 10% ''across-the-board.. tariff cut on Philippine imports from the ASEAN countries. By applying import demand price-elasticities to 1975 import values and tariff rates for seven-digit import commodities, the estimated increase in Philippine intra-ASEAN imports was shown to be only 2.5%. In a similar study, Akrasanee and Koomsup (1979) estimated the increase in Thailand's imports from ASEAN as a result of the tariff cuts agreed upon for the first batch of products under the PTA. On the assumption that only trade creation effects would be generated by the reduction in tariffs, Akrasanee and Koomsup estimated the increase in six Thai imports from ASEAN to be .. very sma 11 , ranging from • 06 to 22.2 per cent .. (1979, p. 54). The first study on the impact of preferent i a 1 tariffs on intra-ASEAN trade for all the ASEAN countries was carried out by Naya (1980). In this study, import demand price-elasticities, estimated at 6

the one-digit level, were applied to all intra-ASEAN trade commodities at this level in order to estimate the trade creating effects of a 10% 11 across-theboard11 tariff cut (Nay a 1980, pp. 22-23). The results indicate that the total increase in i ntra-ASEAN trade waul d be 1ess than 2%. However, for individual ASEAN countries, the estimated increases range from a low of less than 1% to a high of about 5% (Naya 1980, Table III-10, p. III-27). Thus, Nay a cone 1udes that 11 the 10% tariff cut, even if applied across-the-board on all regionally-traded goods, would result in an effect too small to have any significance on intra-regional trade .. (1980, p. III-26). A more recent study by Ooi (1981} presents estimates of the trade creation as well as trade diversion effects of a 20% .. across-the- board 11 tariff cut on imports of the Philippines and Thailand. The products included in the study were all seven-digit products which had import values of less than US$50,000 in 1978. All the seven-digit products were grouped according to one-digit product categories and the aggregate import va 1 ues of these subgroups were used, together with import demand price-elasticities estimated at the one-digit level, in order to generate estimates of the increase in imports flowing from a 20% tariff cut. The conclusions which emerged were that for imports as a whole, the trade creation effects were 11 negligible for both the Philippines (.06%) and Thailand (.02%) 11 (Ooi 1981, p. 20). However, for seven-digit product subgroups falling under SITC 6 in the case of the Philippines and SITC 9 in the case of Thailand, the trade creation effects were higher (19% and 8%, respectively; Ooi 1981, p. 20). A sensitivity analysis was also carried out to assess the impact of tariff cuts ranging from 10 to 7

100%. In addition~ the cut-off ceiling to which these tariff cuts apply was varied from US$50,000 to US$500~000. The main conclusion that emerged was that the trade creation effects of these deeper tariff cuts and/or higher cut-off ceilings are likely to be sma 11. Even if tariffs were removed for a 11 items with import values of less than US$500,000, imports of these items are expected to increase by only 2%. The main reason for this appears to be that items with import values of less than US$500,000 form only about 5% of the tot a 1 imports of the Phi 1i ppi nes (the country for which the sensitivity analysis was carried out; Ooi 1981, p. 21). Although the trade creation effects of tariff cuts appear to be low, it is possible that the trade diversion effects may be high. In order to investigate this possibility, the share of non-ASEAN imports in the total imports of items under the US$50,000 ceiling was used as a measure of the maximum potential trade diversion effects of a 20% tariff cut. For both the Philippines and Thailand, the share of non-ASEAN to total imports was found to be very high (between 90 and 100%) for products falling in all the one-digit SITC groups. However, this does not necessarily mean that the trade diversion effects are likely to be large since many of the products concerned may not be within the capabilities of the ASEAN countries to produce. Even if they were, it is not known if a 20% tariff cut will provide sufficient incentive to induce them to produce for the competitive export market (Ooi 1981, pp. 24-27). The general conclusion that emerges from the studies reviewed above is that the trade creating effects of tariff cuts on intra-ASEAN trade is likely to be very small. However, since the estimated increases in intra-ASEAN trade depend critically on the import demand price-elasticities used, results 8

can vary. The formula used to calcula te the increase in intra-ASEAN imports for any given product or product group is the followin g (Naya 1980, p. III-22; Ooi 1981, p. 13): dM

=

(at/1 + t)nM

where dM is the change in import value, M is the initial- import value, a is the percenta ge tariff cut, t is the existing tariff rate, and n is the import demand price-e lasticit y. This formula assumes that import prices themselv es remain unchange d (Naya 1980, p. III-22; Ooi 1981, p. 13; Bautista 1979, p. 42; Akrasane e and Koomsup 1979, p. 53). Since all the studies reviewed above investig ate the effects of an "across- the-boar d" tariff cut, the variable a is constan t. In addition , for any product group, the existing tariff rate is usually taken as an average (simple or weighted by import values), so the variable t is also constan t (Naya 1980, p. III-23; Ooi 1981, p. 14). This means that in any product group, the percenta ge increase in imports (dM/M) depends critical ly on the import demand price-e lasticit y, n. However, in all the studies reviewed above, the import demand price-e lasticit ies were taken from estimate s at the one-dig it SITC level (Naya 1980, p. III-25; Ooi 1981, p. 16), since these were the only data availabl e. It is likely, therefor e, that the computed increase s in intra-ASEAN trade reported in the studies are biased downwards since import demand price-e lasticit ies at the one-dig it level are likely to underest imate the import demand price-e lasticit ies of seven-d igit products . Thus, a 1though the import demand for SITC 0 (Food and Live Animals) is relative ly inelasti c (Naya 1980, p. III-25), it is unlikely that this will be the case for SITC 0360111 (Prawns and Shrimps , 9

fresh or chilled). For comparisons across one-digit product groups, the existing tariff rate, t, will vary. However, examination of the data reveals that the variation in tariff rates does not correlate with the variation in the estimated increases in imports. For the Philippines, a multiple regression analysis between the estimated increase in imports (dM/M), import demand price-elasticities (n), and the weighted average tariff rates (t) for- the nine one-digit product groups yields the-following results (figures in parentheses are standard errors): dM/M

'R2 n

-1.4841 + 3.6789n + .0508t ( .0286) (1.4362) ( .4896)

= .8721 = 9

For Thailand, simi 1ar results are obtained: dM/M = - .0017 + 3.1675n + .0351t (2.5936) (1.0547) ( .0440)

'R2 n

= .6409 = 6

Data for the above regressions were taken from Ooi (1981, Tables 2, 3 and 4, pp. 17-19). It is clear that most of the variance in the estimated increases in imports is explained by the variance in the import demand elasticities (regression coefficients for n are significant at the .01 level in both cases). The coefficients for the weighted average tariff rate, t, are not significant from zero in either case. There is no collinearity between the independent variables. Thus, the very small 10

increases in intra-ASEAN

imports following tariff cuts, as concluded by studies using this method, is based on the import In so far as these demand e 1ast i cities used. inaccurate are elasticities product one-digit the of price-responsiveness the of estimates seven-digit products included in the PTA, the very pessimistic results reported by these studies should be read with the appropriate degree of scepticism.

11

IV lONGER-TERM IMPliCATIONS OF THE PTA

Even if we accept, at face value, the finding of the studies reviewed in the previous section (that tariff cuts under the PTA are 1 ikely to generate only very small increases in intra-ASEAN trade), it is important to view this result in perspective. After all, tariff cuts under the PTA were not expected to yield large increases in intra-ASEAN trade in the initial stages of the scheme since both the breadth and depth of the tariff reductions were kept small as ASEAN countries embarked cautiously on this new area of regional co-operation. Enthusiasm for the scheme was based on the view that the PTA, by institutionalizing the tariff negotiating machinery, represented the beginning of a new phase of regional co-operation -- one in which deeper and wider tariff cuts would be made once initial problems were This would eventually give rise to overcome. significant increases in intra-ASEAN trade as ASEAN member-countries, encouraged by the preferential tariffs, begin to specialize in areas of production in which they have comparative advantage. This is succinctly stated in a United Nations document which, in recommending the establishment of preferential trading arrangements, states that trade liberalization provides "the quickest way of expanding markets of individual countries and thus,

12

some rationalization of ASEAN economies" (United announcements of deeper the PTA confirm this view

the production structure of Nation 1974, p. 53). Recent and wider tariff cuts under (Osman 1981).

Thus, the longer-term aim of the PTA is to encourage changes in the structure of the economies of the ASEAN countries in order to generate more of specialization the through complementarity Until advantage. comparative on based production such changes begin to occur, it is unlikely that generate to able be will reductions tariff What trade. ntra-ASEAN i in increases cant si gni fi development the of stage this at concern of be should of the PTA then is the extent to which the kinds of products for which the ASEAN countries are offering preferential tariffs (as well as their distribution in the preference 1i sts of the countries concerned) are likely to contribute to the longer-term aim of regional through complementarity increasing This is the specialization of economic activity. focus of the present study. The data used in this study comprise the 4,936 seven-digit products for which tariff preferences were granted for the first seven batches of items These products were negotiated under the PTA. negotiated under the "product-by- product" approach to tariff red~ction. At the time of writing, these were the only data available. Table 1 presents the distribution of preference items according to one-digit BTN categories (the kinds of products included in each of the one-digit BTN categories are listed in Appendix 1). It can be seen that the di stri but ion of products in the preference lists of all the ASEAN countries is broadly similar, with all countries offering tariff preferences on products fa 11 i ng under BTN 2 and BTN It wi 11 be shown 1 ater that the products 8. 13

TPBLE 1 Dis-tribution .of R-eference ltea!S of ASEAN Countries according to 1-digit BTN Categories

Per Cent*

BTN

Indonesia

Malaysia

Phi I i pp i nes

Singapore

0

4.0

11. 1

2.6

11.2

7. 1

8.2

14.2

5.8

9.1

5.5

2

40.6

19. 1

33.0

16.6

21.6

3

9. I

12.1

9.7

7.7

13.8

4

3.3

6.6

3.3

8.6

22.7

5

3.5

9.1

1. 5

4. 1

1. 5

6

1.2

5.5

2.4

11.7

3.2

7

9.8

6.3

5.9

7.8

7.3

8

18.8

14.6

27.2

12. 1

10.5

9

1.3

1.3

8.4

10.9

6.8

99.8

99.9

99.8

99.8

100.0

*

Thai land

Number of seven-dig it items fa I I i ng under one-digit BTN categories as a proportion of the tot a I number of preference items.

SOURCE:

Appendices 1-5.

14

concerned are BTN 28 (Inorganic Chemica 1s), BTN 29 (Organic Chemicals), and BTN 84 (Machinery, including Electrical Machinery). The degree of concentration on BTN 2 and BTN 8 is less pronounced in the case of Malaysia and Singapore. Table 2, which shows the zero-order correlation coefficients between the distribution of preference items of the ASEAN countries, confirms the broad similarity in the distribution of the preference lists. Note, however, that while the distribution of items in the preference lists of Indonesia, the Philippines, and Thailand shows a high degree of similarity (the coefficients for Thailand are somewhat lower primarily because a large proportion of items fall under BTN 4, the majority of which are not imported by Thailand), this is not the case for Malaysia and Singapore. One might infer from this that the kinds of products for which tariff preferences are offered by ASEAN countries (as well as their distribution) are more a reflection of (rather than an attempt to change) the existing pattern of the production structures of these countries. Table 3 shows the distribution of preference items according to the depth of tariff cuts offered. Once again, broad similarities stand out clearly. Most of the items offered by Indonesia, the Philippines, and Thailand have tariff cuts in the 10 to 19% range (see Appendices 2, 4, and 6 for details). On the other hand, most of the items offered by Malaysia and Singapore are products for which the existing tariff is zero (Appendices 3 and 5) and for which the tariff preference takes the form of a commitment not to impose tariffs for a period of five years. Thus, tariff cuts under the PTA are unlikely to generate large increases in intra-ASEAN imports for Malaysia and Singapore since many of the items which they offer under the scheme have zero tariffs anyway.

15

T!B LE 2

ASEAN: Zero-order Correlation Coefficien-ts bstween the Distributions of Preference 1-te.s of ASEAN Coun1ries (1-digit" BTN. n = 10)

Indonesia

Indonesia Malaysia Phi I i pp i nes Singapore

Significant at 0.01. Significant at 0.05. Significant at 0.10.

SOURCE:

Ph i I i pp i nes

Singapore

Thai Iand

.7871*

.7214*

.6743**

.5591***

.6832**

.4018

.3666

• 7235*

.5018*** .4257

Thai land

* ** ***

Malaysia

Appendices 1-5.

TIB LE 3

Ols"trlbution of Preference l"tems of ASEAN Coun-tries according "to Tariff cuts

Per Cent* Tar i tf cuts 0-9

10-19

20-29

30-39

0.9

95.2

3.8

o. 1

0

47.7

42.9

7.8

1. 5

o. 1

0.2

71. 1

27.2

0.9

0.5

Singapore

84.0

11.7

2.5

3.3

1.4

Thai land

0.2

64.3

17.6

13.9

3.9

Indonesia Malaysia Phi I ippines

*

40-100

Number of seven-digit items falling under various tariff cut categories as a proportion of the tot a I number of preference items.

SOURCE:

Appendices 1-5.

17

Table 4 shows the distribution of preference It is clear that the items according to end use. the categories of in vast majority of items fall and machinery. materials, raw intermediate products, the Indonesia, between Once again, the differences and hand, one the on Thailand, and Philippines, Ma 1ays i a and Singapore, on the other, are striking. Consumer goods make up very small proportions of the the Indonesia, by offered i terns preference these because presumably Thailand, and Philippines, domestic their protect to want countries less is This industries. import-substituting Singapore and Malaysia of case pronounced in the For which have relatively more open economies. large relatively comprise items food example, proportions of the preference items offered by Malaysia, and Singapore, but form relatively small proportions of the items offered by Indonesia, the Philippines, and Thailand. This lends support to the view that the kinds of products for which ASEAN countries offer tariff preferences under the PTA (as well as their distribution) reflect the existing structural pattern of economic activity within ASEAN. The consequence of this is that the potentia 1 of the PTA to generate increased i ntra-ASEAN trade through greater complementarity will be 1 imited to a small group of products. This may not be a matter for concern if the products which dominate the preference 1 i sts of the ASEAN countries are those which the member-countries This producing. in have comparative advantage appears not to be the case. Tables 5 to 9 show the relative importance of the preference items for four ASEAN countries in relation to the major exports of the fifth. The figures in these tables are maximum estimates since the major exports are classified according to two-digit BTN categories while the preference items are classified at the seven-digit For example, Table 5 shows that 1% of the level. 18

Tftl LE 4

Distribution of Preference Items

ASEAN:

Per Cent Indonesia

Phi I i pp i nes

Singapore

Thai I and

6.2

20.3

3.5

16.9

7.2

13.4

15.7

10.1

17.8

14.5

63.7

42.3

62.7

40.7

66.8

14.9

8.2

21.3

6.7

8.0

17.9d

3. 5e

Food Raw Materials

Malaysia

International Products Machinery Consumer Goods

TOTAL

a

1.8a

100.0

100.0

Plastics

2.4c

13.5b

(infants'

feeding

100.0

bottles),

100.0

Textiles

100.0

(fabrics),

Metal

Products (knitting needles), Electrical Machinery (refrigerators, fans, radios), Scientific Equipment (cameras, clocks). b

Chemicals ware),

c

d

(cosmetics,

Textiles

toilet preparations),

(fabrics),

Wood Products (household

Non-metallic

Mineral

Products

(long

baths), Metal Products (long baths, various Machinery (radios), Scientific Equipment (musical

tools), Electrical instruments).

Textiles (fabrics), Electrical Machinery Equipment (cameras, musical instruments).

dryers),

Plastics

(plastic

fabrics,

lampshades,

(hair

blinds),

Textiles

Scientific

(fabrics,

garments, gloves, socks), Chemicals (soaps, detergents), Rubber Products (tyres), Wood Products (furniture, matches, books, pipes), Leather Products

(handbags), Metal

needles, travel goods, various Machinery (dishwashing machines).

e

Products tools,

(kitchen sinks, knitting kitchenware),

Electrical

Plastics (household Chemicals ware, hot-water bottles, gloves), (photographic film), Leather Products ( g I oves), Meta I Products (knives, scissors), Scientific Equipment (binoculars, telescopes).

SOURCE:

Appendices 1-5.

preference items offered by Thailand fall in the category of one of Indonesia's major exports, BTN 27 (Mineral Fuels). However, a closer examination reveals that the item concerned is BTN 27.13.01 (Paraffin Wax), which actually makes up 0.1% of Indonesia's exports. In spite of the fact that the figures are maximum estimates, Tables 5 to 9 show that relatively small proportions of the preference items of the ASEAN countries fall among the major exports of their ASEAN partners. At most, the proportion is only about 20%. The Philippines is an exception (Table 8), but even so, less than a third of the items offered by the Philippines fall into the major export categories of Singapore. The figures for Thailand are inflated by the inclusion of a large proportion of wood products which Thailand does not import. This is additional testimony to the view that the kinds of products (as well as their distribution) offered by ASEAN countries for tariff preferences are dominated by the existing structure of economic activity, and the existing pattern of trade. Since most of the ASEAN countries have comparative advantage in producing and exporting primary products (electrical machinery exports of Malaysia and Singapore being an exception), their import needs are similar. This explains the similarity of the products for which ASEAN countries offer preferential tariffs and the fact that these products do not usually fall among the major export items of their ASEAN trading partners. The analysis so far has been conducted primarily at the one-digit BTN product level of classification. Since this is a high degree of aggregation, one might expect to find the similarity of both kinds of products for which tariff preferences .have been offered under the PTA (as well as their distribution) 20

TflB \-E 5 Indonesia: Dis-tribution of Preference I-tems offered by other ASEAN Coun-tries in rela-tion "to Indonesia's Major Exports

BTN

Products

09 27 40 44 80

Coffee, Tea, Spices MI ner a I F ue I s Rubber Wood Tin

% total value

% of total nu of items offered by Malaysia

Phi I i pp i nes

Singapore

Thai land

5.9 68.6 6.2 8.8 2.4

1.7 1. 7 1.4 1.4 o. 1

1. 7 1. 1 1.4 0.2 0.4

1.2 0.8 1.6 2.6 0.1

2.2 1.0 1. 1 17. 1* 0

91.9

6.3

4.8

6.3

21.4

TOTAL

*

76.4% not currently traded.

SOURCE:

Appendices 12-16; and Foreign Trade Statistics: Statistik, 1978).

Exports (Jakarta:

Biro Pusat

TJB LE 6 Malaysia:

BTN

15 27

40 44 74-81 85

Dis-tribution of Preference I-tems offered by ather ASEAN Coun"tries in rela-tion "to Malaysia's Major Exports

Products

Animal & Veg. Oi Is MineraI Fuels Rubber Wood Non-ferrous Meta Is Electrical Machinery

TOTAL

*

% total value

%of total no. of items offered by Indonesia

Phi I i pp i nes

Singapore

Thai land

13.7 4. 1 25.2 5.8 14.9 10.8

3.1 1.6 0.7 0 9.9 2.0

2.4 1. 1 1.4 0.2 4.9 6.3

1.3 0.8 1.6 2.6 6.9 1. 7

1.8 1.0 1. 1 17. 1* 7.5 0.2

74.5

17.3

16.3

14.9

28.7

76.4% not currently traded.

SOURCE:

Appendices 12-16; and Annual Statistics of External (Kuala Lumpur: Department of Statistics, 1978).

Trade,

Vol.

I I,

Exports

TP6 LE 7 Phi I ippines: Distribution of Preference l"ta.s offered by ather ASEAN Coun-tries in rela-tion "to Major Expor-ts of "the Phil ipplnes

%of total no. of items offered by

% BTN

12 14 26 61 98 TOTAL

SOURCE:

Products

Oi I Seeds Animal & Veg. Oils Meta I I i c Ores Clothing Misc. Manufactures

total value

Indonesia

Malaysia

Singapore

Thai land

1. 9 3.1 0.9 o. 1

1.3 1.3 0.8 4.9

0.7 1.8 2. 1 0

0

0

8.3

4.6

4.1 18.8 14.0 4.7 9.4

0

2.6 2.9 0.8 2.6 o. 1

54.2

6.0

9.0

Appendices 12-16; and Foreign Trade Statistics of the Philippines (Mani Ia: National Census and Statistics Office, 1978).

TJIB LE 8 Singapore: Distribution of f'reterence l"ta.s offered by o"ther ASEAN Countries in relation "to Singapore's Major Expor"ts

BTN

09 27 40 61 84 85 87

Products

Coffee, Tea, Spices Mineral Fuels Rubber Clothing Machinery Electrical Machinery Vehicles and Parts

TOTAL

SOURCE:

Appendices 12-16; and of Customs, 1978).

% total value

%of total

n~

of items offered by

Indonesia

Malaysia

2.6 23.0 10.8 5.5 5.6 15.5 3.7

0.2 1.6 0.7 0.1 15.0 2.0 0.3

1. 7 1. 7 1.4 2.6 6.3 3.0 0.5

1.7 1. 1 1.4 0 17.7 6.3 0.4

2.2 1.0 1. 1 0 5.6 0.2 0

66.7

19.9

17.2

28.6

10.1

Forei~n

Philippines

Trade Statistics of Thai land (Bangkok:

Thai land

Department

TJ!B LE 9 Thai land:

BTN

03 07 10 17 40 51 61 71 85

Products

Fish, Crustaceans Edible Vegetables Cereals Sugar Rubber Man-made Fibres Clothing Precious Stones Electrical Machinery

TOTAL

SOURCE:

Disrribu'tion of Preference lta.s offered by other ASEAN Countries In rei ati on to Thai I and 1 s Major Exports

% total value

%of total no. of items offered by Indonesia

Malaysia

Phi I i pp i nes

Singapore

4.3 14.3 18.5 5.5 10. 1 3.4 2.7 2.6 2.8

0 0.2 0.6 0.6 0.7 0.7 0.1 o. 1 2.0

1.9 1.9 0.8 1.4 1.4 0.8 2.6 1. 1 3.0

0 0.2 o. 1 0.5 1.4 o. 1 0 0 6.3

2.4 0.2 0.2 1.8 1.6 0.1 4.9 0.6 1. 7

73.2

5.0

14.9

8.6

13.5

Statistics,

Imports and

Appendices 12-16; and Sin9apore Ha If-Year I:r: Trade (Singapore: Department of Statistics, 1979).

Export~

reduced when the analysis levels of aggregation.

is

conducted

at

lower

Table 10 shows that at the two-digit BTN level (99 product groups), there is still a high degree of similarity in the distribution of the preference the Although countries. ASEAN the of items correlation coefficients are generally lower than statistically those in Table 2, they are all The figures in significant at the .01 level. Appendices 7 to 11 show that at the two-digit BTN 1evel, the preference 1 i sts of the ASEAN countries are dominated by BTN 28 (Inorganic Chemicals), BTN 29 (Organic Chemicals), and BTN 84 (Machinery, including Electrical Machinery). This is most striking in the case of Indonesia, the Philippines, and Thailand. The distribution of the preference items of Singapore and Malaysia are much more even and similar to each other than to those of the other three ASEAN In spite of this, Table 10 shows a high countries. degree of similarity in the distribution of the preference items of a 11 the ASEAN countries at the This similarity may lead to BTN two-digit level. increased intra-regional trade in similar product However, this will depend on the types of groups. products included in the preference lists. the of summmary a presents 11 Table characteristics of the major preference items at the BTN two-digit level (details are found in Appendices Figure 1 presents the main items 12 to 16). It can be seen from Tab 1 e 11 that the graphically. weighted average ASEAN import share of the major two-digit preference items is low, particularly for Indonesia, the Philippines, and Thailand. This is a reflection of the existing pattern of intra-ASEAN The zero-order correlation trade (see Figure 1). between the ASEAN import share of the major two-digit preference items and the ASEAN import share of total imports of the ASEAN countries is .74 (significant at .10) • 26

TPBLE 10 Zero-or-der Correhrtion Coefficien-ts between "the Distributions of Preference l"tems of ASEAN Coun-tries (2-digl"t BTN. n = 99)

lndonesi a

Indonesia Malaysia Phi I i pp i nes Singapore

Significant at 0.01.

SOURCE:

Ph i I i pp i nes

Singapore

Thai land

.6077*

.8677*

.5617*

.4752*

.6822*

.6585*

.3803*

.6313*

.4874* .4714*

Thailand

*

Malaysia

Appendices 12-16.

TJIB LE 11 s..ary of Characteristics of Major Preference Items (2-digit BDO

Weighted Average {%) ASEAN import share

Country

ASEAN import share

% not traded

% no ASEAN imports

0-9%

10-49%

50-100%

Indonesia Malaysia Ph i I i pp i nes Singapore Thai land

7.3 16.7 3.6 18.3 8.3

1.4 6.9 1.6 9.0 21.3

13.8 18.7 51.3 18.0 62.7

82.3 74.1 94.5 67.9 94.6

13.7 12.3 4.2 16.7 3.2

4. 1 13.6 1.3 15.4 2.2

SOURCE:

Appendices 12-16.

FIGURE 1

Sa.e Characteris'tics of 2-digit BTN Preference l'tems of ASEAN % no ASEAN imports %

% not traded

70

"!:!"" ..:">

60

50

"0

"

~

.!i!l'

40

"

~

30

20

~--------·

I

10

I I

,..--------J

r---------,I

I

--------J Indonesia

I

I

L--------J

Malaysia

Philippines

Thailand

Singapore

ASEAN import share of preference items %

ASEAN import share of total imports

70

60

.---------,

50

10

--------t-------f.-------Indonesia

SOURCE:

Tab I e 11.

Malaysia

Philippines

L--------i Singapore

Thailand

On the other hand, the weighted average of the proportion of preference items imported from non-ASEAN countries is high (over 50%) for the Philippines and Thailand. The weighted average of the proportion of preference i terns for which there are no imports at all (that is, non-traded items) is low, except for Thailand (which offers tariff cuts on a re 1at i ve ly large number of wood products which it does not import). Thus, for all the major preference items at the BTN two-digit level, between 74% (Malaysia) and 95% (Thailand) have ASEAN import shares of between 0 and 9%. This suggests considerable potential of the PTA to increase intra-ASEAN trade through trade diversion. Whether this potential can be realized will depend on whether: (a)

the tariff cuts offered are sufficiently deep to make imports from ASEAN countries competitive with non-ASEAN imports, and

(b)

ASEAN countries have the capability of producing for export, the products included under the PTA.

The available data are not sufficiently accurate to pro vi de a satisfactory answer to the first question. Prices for individual products are not accessible, and even if they were, differences in product quality (as well as other factors such as after-sales service, and spare-parts availability) would present serious problems of comparability. Some writers (for example, Bautista 1979) report that many businessmen regard the 10-30% tariff cuts offered for the first seven batches of i terns agreed upon under the PTA as too small to make any significant contribution towards increasing intraregional trade. 30

The second question is more amenable to empirical analysis since data on exports can be examined. This involves a study of the PTA items at the BTN seven-digit level. Since there are a large number of items at this level of aggregation, only the major preference items under BTN 84 (Machinery) wi 11 be examined. Apart from making the extraction of data more manageable, this will focus attention on a product group which makes up a major proportion of the preference items of all the ASEAN countries. It is also likely that the BTN 84 (Machinery) group of products is not as tightly constrained by resource endowments as other product groups, since it comprises manufactured products which are more likely to be within the capability of ASEAN countries to produce and export. Tab 1e 12 shows the zero- order corre 1at ion coefficients between the distributions of the seven-digit preference items of the ASEAN countries fa 11 i ng under BTN 84. As one might have expected, most of the ASEAN countries have different distributions of seven-digit preference items (most of the correlation coefficients are not statistically significant from zero). What is surprising is that the distribution of the preference items of Malaysia is similar to that of the Philippines and Singapore, even at this level of aggregation. The genera 1 picture which emerges is that the ASEAN countries are offering preferential tariffs on broadly similar product groups. This appears to be the case up to the four-digit level of aggregation (Table 13 presents the zero-order correlation coefficients at the four-digit level). However, at the seven-digit level, the similarity of the distributions of preference items (with the exception of BTN 84 for Malaysia) no longer holds. This suggests that the potential of the PTA to stimulate greater intra-regional trade will very likely be 31

Table 12 Zero-order Correlation CoefficIents between the Oi str i but ions of Preference ltaas of ASEAN Countries (7-dlglt BTN 84 itaas. n = 45)

Indonesia

Indonesia

Malaysia

Ph i I i pp i nes

Singapore

Thai Iand

.2370

.1530

-.2560

.1390

Malaysia

.4430*

Phi I ippines

.3000* -.1670

Singapore

.1690 -.0480 -.1810

Thai land

*

Significant at 0.01.

SOURCE:

ASEAN 1981).

Preferential

Tariffs

(Singapore:

Department

of

Trade,

TJB LE 13 Zero-order Correlation Coefficient-s b e t - -the Dis-tribtrtions of Preference 11"8115 of ASEAN Countries (4-digi"t BTN, n = 857)

Indonesia

Malaysia

.0957*

Indonesia

Ph I I i pp i nes

.2868* • 1125*

Malaysia Phi I ippines

Singapore

-.0353

Thai land

.1465*

• 1843*

.0732*

-.0839*

.1491* -.0002

Singapore Thai land

*

Significant at 0.01.

SOURCE:

ASEAN Preferential Tarrifs (Singapore:

Department of Trade, 1981).

confined to the three major product groups which dominate the preference lists of the ASEAN countries Organic Chemicals, Inorganic Chemicals, and Machinery. But even within these groups, the likelihood of this potential being realized will depend on whether the ASEAN countries have the capability to produce and export these products. Tables 14 to 18 show the import and export shares of major preference items in the BTN 84 (Machinery) product group. These tables summarize the results of the seven-digit data analysis which can be found in Appendices 17 to 21. The export shares should be regarded as maximum estimates of production capabilities since the export data include re-exports. Since domestic export data were not available for all the ASEAN countries, data on total exports were used. Exports of Singapore to Indonesia were obtained from Indonesian import statistics. Table 14 shows that although the ASEAN import share of machinery preference items offered by Indonesia is low (4.7%), Indonesia's import share of the exports of the other four ASEAN countries is much higher (ranging from 13 to 22%). This suggests some scope for increased i ntra-ASEAN trade through trade diversion. However, there are many preference items of Indonesia which are not exported by the Philippines, Thailand, and (to a lesser extent) Malaysia. These are products for which these countries have no comparative advantage in producing for export. At the same time, there are also many preference items for which Indonesia's export share is zero (particularly among the exports of Malaysia and Thailand). These preference items offered by Indonesia are exported by the other ASEAN countries, but not to Indonesia. These are the items for which the potential for intra-ASEAN trade expansion through trade diversion is greatest. 34

Tie LE 14 IndonesIa:

ASEAN IIIPQI'""t and Export" Shares of Preference I "tems In "the BTN 84 (Machinery) Group

Per Cent

Average*

ASEAN Import share

Exports to Indonesia/Total exports Malaysia

4.7

22.4

13.5

13.0

14.2

10.0

3.3 14.7 85.2 14.7 0

29.3 44.8 86.2 8.6 5.2

69.5 23.9 98.3 0 1.7

8.5 13.6 76.3 16.9 6.8

45.3 37.7 92.4 5.7 1.8

9.6 11.5 78.8 17.3 3.8

Phi I i pp i nes

Singapore

Thai land

ASEAN

'f, Total:

Not traded Zero share 0-9% share 10-49% share 50-100% share

* Traded items only. SOURCE:

Appendices 17-21.

Table 15 shows that in the case of Malaysia, the ASEAN import share of its preference items is low (5.9%). Malaysia•s import share of the machinery exports from the Philippines, Singapore, and Thailand is relatively high (between 42 and 50%). However, with the exception of Singapore, a large proportion of the other preference items offered by Malaysia are not exported by the ASEAN countries (between 51 and 79%). In addition, the proportion of preference items exported by the other ASEAN countries, but not to Malaysia, is relatively low (between 15 and 27%). Thus, the potential for increased intra-ASEAN trade through trade diversion is rather small. The machinery product preference items offered by Malaysia comprise products which are either not exported by the other ASEAN countries, or if they are, Malaysia•s share of their exports is already high. Indonesia is an exception; it does not export any of its machinery products to Malaysia as they do not fall within Malaysia•s preference list. In fact, 79% of the preference items offered by Malaysia comprise products for which Indonesia has no comparative advantage to produce for export. The situation with the Philippines is very different. Table 16 shows that although the ASEAN import share of the machinery preference items of the Philippines is very sma 11 (2%), the import share of the Philippines of products which the other ASEAN countries currently export to her, is even smaller. (The exception is Singapore, but Singapore•s exports to the Phi 1 i ppi nes of products fa 11 i ng in the 1atter• s preference list is only 5% of Si ngapore• s total exports.) In the case of Indonesia and Thai 1and, a large proportion of the i terns for which the Philippines offers preferential tariffs are not exported by these countries. However, there are also relatively large proportions of items which are exported by other ASEAN countries but currently not imported by the Philippines. This is a reflection of 36

TPBLE 15 Malaysia:

ASEAN IIIPQrt" and Export Shires of Preference l"te.s In "the BTN 84 (Machinery) 9"oup

Per Cent ASEAN import share

Average*

Exports to Malaysia/Total exports lndonesi a

Philippines

Singapore

Thai land

ASEAN

5.9

0

48.8

41.6

50.4

41.4

0 20.6 91.2 2.9 5.9

79.4 20.6 100.0 0 0

66.7 27.3 97.0 0 3.0

2.9 14.7 20.6 47.0 32.3

51.5 27.3 78.8 21. 1 9.1

3.1 15.6 25.0 40.6 34.4

% Total: Not traded Zero share 0-9% share 10-49% share 50-100% share

* Traded items only. SOURCE:

Appendices 17-21.

TPB LE 16 Phi I ippines:

ASEAN lllpOrt and Export Shares of Preference l"te.s In ffle B1M 84 (Machi nary) Group

Per Cent ASEAN import share

Average* % Total: Not traded Zero share 0-9% share 10-49% share 50-100% share

* Traded items only. SOURCE:

Appendices 17-21.

Export to Philippines/Total exports Indonesia

Malaysia

Singapore

Thai land

2.0

0

0.4

5.4

0

4. 1

1.9 59.6 94.2 5.8 0

66.0 34.0 100.0 0 0

29.2 68.7 100.0 0 0

7.7 57.7 90.4 9.6 0

51.0 49.0 100.0 0 0

4.3 65.2 95.6 4.3 0

ASEAN

the fact that, historically, the major trading links of the Philippines have been with non-ASEAN countries. Thus, the potential for increased intra-regional trade through trade diversion is relati\"ely high. For Singapore, Table 17 shows that the ASEAN import share of machinery products falling in Singapore's preference list is 6.9% but Singapore's import share of the exports from the other ASEAN countries (with the exception of Thailand) is between 50 and 100%. However, with the exception of Malaysia, very large proportions (between 68 and 92%) of the machinery items in Singapore's preference list are not exported by the other ASEAN countries. Of the items which are exported, relatively large proportions are already imported by Singapore. Thus, the potential for increased intra-ASEAN trade through trade diversion is rather small. Table 18 shows that a similar situation exists for Thailand. The main difference is that there are 1arge proportions of Tha i1 and • s machinery preference items which Malaysia and Singapore export to countries other than Thailand. Thus the potential for increased trade with these two countries through trade diversion is greater. This examination of the export data suggests that the potential of the PTA to increase intra-ASEAN trade through trade diversion is relatively low in Large the case of Malaysia and Singapore. proportions of their machinery preference i terns are not exported by the other ASEAN countries. Of the small proportions which are exported, Malaysia and Singapore already take large shares. For the other three ASEAN countries, the potential for increased intra-regional trade through trade diversion is greater. There are relatively large proportions of these countries' machinery preference items which are 39

TI'B LE 17

Singapore:

ASEAN IIIIIPOI"'i" and Export Shares of Preference l"t..s in "the BTN 84 (Machinery) Group

Per Cent ASEAN import share

Average*

Exports to Singapore/Total exports Indonesia

Malaysia

Phi I i pp i nes

Thai land

ASEAN

6.9

100.0

50.9

100.0

12.1

42.3

4.3 45.6 84.8 13.0 2.2

91.9 2.7 94.6 0 5.4

20.0 32.5 62.5 10.0 27.5

80.5 13.9 94.4 0 5.5

67.6 24.3 94.6 5.4 0

16.7 30.5 58.3 16.7 25.0

%Total: Not traded Zero share 0-9% share 10-49% share 50-100% share

* Traded items only. SOURCE:

Appendices 17-21.

TPBLE 18 Thailand:

ASEAN IIIIIJO(T and Expor-t Shares of Preference lt..s In 11le BTN 84 (Milchinery) Group

Per Cent ASEAN import share

Average*

1.0

Exports to Thai land/Total exports Indonesia

0

Malaysia

1. 5

Phi I i pp i nes

0

Singapore

ASEAN

2.9

1. 5

18.9 64.9 100.0 0 0

17.6 70.6 100.0 0 0

% Total: Not traded Zero share 0-9% share 10-49% share 50-100% share

* Traded items only. SOURCE:

Appendices 17-21.

2.7 74.8 100.0 0 0

81. 1 18.9 100.0 0 0

25.7 71.4 100.0 0 0

63.9 36.1 100.0 0 0

exported by the other ASEAN countries but which at present are not imported by the former. For all countries, relatively large proportions of their machinery preference items are not exported by the other ASEAN countries at all. In most cases, this is because they comprise products for which the other ASEAN countries have no comparative advantage in producing for export. While it is possible that some of these products may be produced (usually under high tariff protection) for the domestic market, it is un 1 ike ly that the tariff cuts granted under the PTA would provide sufficient stimulus to enable these industries to enter the competitive export market.

42

v CONCLUSION

An examination of the distribution of the products included in the preference lists of the ASEAN countries shows that all the ASEAN countries concentrate their tariff preferences in three broad product categories -- Organic Chemicals, Inorganic Chemicals, and Machinery. This similarity in the distributions of preference lists can be observed up to the four-digit level of product classification. At the seven-digit level, however, (taking machinery products as an example) the distributions of preference lists of most countries are no longer similar. The exceptions are the high degree of similarity in the distributions of the preference lists of Malaysia and the Philippines on the one hand, and Malaysia and Singapore on the other. The fact that all the ASEAN countries concentrate their tariff preferences in a few broad product categories suggests that the longer-term impact of the PTA may be to encourage regional specialization and stimulate intra-ASEAN trade in these few broad product categories. However, the potential for increased intra-regional trade (even within these few broad product groups) can only be realized if the ASEAN countries have the capabi 1ity to produce the products concerned for the competitive export market. Examination of the export data 43

indicates that for Malaysia and Singapore, the imports is potential for greater intra-regional limited. The reason for this is that the other ASEAN countries at present do not export 1arge proportions of the major preference i terns sought by Ma 1 ays i a and Singapore. Of the products which the other countries do export, Malaysia and Singapore already take 1arge increased for potential the Thus, shares. intra-regional imports through trade diversion is and Philippines, the Indonesia, For limited. Thailand, the potential for increased intra-regional Although large proportions of imports is greater. the preference items of these countries are not exported by the other ASEAN countries, there are also large proportions of which the other ASEAN countries do have exports. And since for these products, the share of exports going to Indonesia, the Philippines, and Thai 1 and is at present very 1 ow, the potentia 1 for greater intra- regi ana 1 imports through trade diversion exists. However, most of the increase in intra-regional imports of these countries is likely to come from Malaysia and Singapore because these are the only countries which have the capability of exporting the products concerned. Thus, the PTA is likely to reinforce (rather than change) the existing pattern of regional specialization in production and exchange. The main policy implication which suggests itself is that the ASEAN countries should give more attention to the kinds of products (as well as their distribution) to be included in their preference This should complement the lists under the PTA. current emphasis on deeper and wider (across-theboard) tariff cuts • Only then will the PTA be an greater encouraging for instrument effective complementarity based on regional specialization in products for which member-countries have comparative advantage in producing. Currently large numbers of products that have been included in the PTA appear to

44

have been selected on the basis of political rather than economic considerations. For example, Thailand (Department of Trade 1981, pp. 99-102) offers tariff cuts on a 1arge number of wood products which the other ASEAN countries cannot produce, and which Thailand does not currently import; Indonesia (Department of Trade 1981, p. 35) offers a 10% tariff cut on nuclear reactors; the Philippines (Department of Trade 1981, p. 83) offers a 10% tariff cut on snow ploughs; and Malaysia (Department of Trade 1981, p. 53) includes in its preference list a number of rubber products for which she is a major world exporter. For the PTA to be an effective instrument for the expansion of intra-ASEAN trade, the types of products included as well as the magnitude of the tariff cuts offered have to be such that the possibilities for increased complementarity through regional specialization based on comparative advantage are maximized. Analysis of the data presented in this paper suggests that, at the present time, the PTA is not being used effectively to stimulate greater intra-ASEAN trade.

45

APPENDICES

APPENDIX l

1-digit BTN Product Categories 0

Live animals; meat; fish; dairy produce; products of animal origin; vegetable products; edible vegetables; edible fruits and nuts; coffee, tea, spices.

1

Cereals; products of the milling industry; oil seeds; raw vegetable material for dyeing; vegetable material for plaiting; animal and vegetable fats, oils, waxes; preparations of meat, fish; sugar and sugar confectionary; cocoa and cocoa preparations; preparations of cereals, flour, starch.

2

Preparations of vegetables, and fruits; mi see ll aneous ed i b1e preparations; beverages, spirits, vinegar; animal fodder; tobacco; salts, sulphur, lime, cement; metallic ores, slag, ash; mineral fuels, oils, waxes; inorganic chemicals; organic chemicals.

3

Ph a rmaceut i ca 1 products; fertilizers; tanning and dyeing materials, paint; oils, perfumery, cosmetics; soaps, washing preparations, candles; glues; explosives, matches; photographic and cinematographic products; mi see 11 aneous chemical products; artificial resins and plastic materials. 46

4

Rubber, synthetic rubber and art i c1es thereof; raw hides, skins, and leather; articles of leather; furskins and articles thereof; wood and articles of wood; cork and articles of cork; manufactures of straw and plaited materials; paper-making materials; paper, paper-board, and articles of paper; books, newspapers, etc.

5

Si 1k and waste s i 1k; man-made fibres (continuous); metallized textiles; wool and other animal hair; flax and ramie; cotton; man-made fibres (discontinuous); other vegetable textile material, yarns; carpets, mats, tulle, lace; wadding, felt, twine, ropes.

6

Knitted and crocheted goods; apparel and clothing; other made-up textiles; old clothing, rags; footwear; headgear; umbrellas, whips, etc.; preparations of feathers, human hair, etc.; art i c1es of stone, cement, etc.; ceramic products.

7

Glass and glassware; pearls, imitation jewellery; coins; iron and steel and articles thereof; copper and articles thereof; nickel and articles thereof; aluminium and articles thereof; magnesium, beryl and articles thereof; lead and articles thereof; zinc and articles thereof.

8

Tin and articles thereof; other base metals; tools, spoons, forks and parts thereof; miscellaneous articles of base metal; boilers, machinery and parts thereof; electrical machinery and equipment; railway, tramway locomotives, etc.; vehicles and parts thereof; aircraft and parts thereof; ships, boats, and other floating structures.

47

9

Optical, cinematographic and medical instruments; clocks, watches and parts thereof; musical instruments and parts thereof; arms, ammunition and parts thereof; furniture and parts thereof; articles and manufactures of carving and moulded materials ; brooms, brushes, sieves, etc.; toys, games, sports products and parts thereof; miscellaneous manufactured articles; works of art, collector s' items, etc.

48

APPENDIX 2

Indonesia:

Distribution of Preference l"tenas

Tariff cuts BTN

No.@

%

0

43

4.0

87

8.2

431

40.6

2

D-9%

10-19%

43 43 2(0*) 20.0

2.3

1(0*) 4(0#) 50.0

1.2

3

97

9.1

4

35

3.3

1(0#) 10.0

5

37

3.5

1(0#) 10.0

81 8.0 398

20-29%

40%+

30-39%

100.0

93.1

4 10.0

4.6

92.3

27

6.3

39.4

1 100.0

67.5

95 9.4

97.9

2 5.0

2. 1

2.8

32 3.2

91.4

2 5.0

5.7

2.7

36 3.6

97.3

0.2

APPENDIX 3 (Continued) Malaysia:

Distribui"ion of Preference 11"81115

Tari tf cuts BTN

No@

%

6

59

5.5

5(0*) 0.9

8.5

54 11.8

91.5

7

67

6.3

31 (0*) 6. 1

46.3

28 6.1

41.8

8

156

14.6

79(0*) 1(0#) 15.7

51.2

75

47.2

8(0*) 1.6

57.1

6 1.3

42.9

47.7

458 100.0

42.9

9

TOTAL

14

1.3

1068

100.0

0-9%

510 100.0

10-19%

20-29%

8 9.6

30-39%

11.9

1

0.6

6.2

16.4

83 100.0

7.8

16 100.0

1.5

@ Number of 7-digit items. * Zero tariff binding. # No tar i ff cut.

SOURCE:

ASEAN Preferential Tariffs (Singapore:

40%+

Ministry of Trade and Industry, 1981).

1 100.0

0.09

APPENDIX 4 Phi I ippines:

Distribution of Preference l"t.s

Tar i ft cuts

N:>.il

%

24

2.6

16 2.4

66.7

3 1.2

12.5

1 12.5

4.2

53

5.8

26 4.0

49.1

26 10.4

49.1

1 12.5

1.9

2

302

33.0

244 37.4

80.8

56 22.5

18.5

1 12.5

0.3

3

89

9.7

50 7.7

56.2

38 15.3

42.7

4

30

3.3

20 3. 1

66.7

10 4.0

33.3

5

14

1.5

11 1. 7

78.6

3 1.2

21.4

BTN

0

1Q-19%

0-9%

1(0#) 50.0

0.3

20-29%

30-39%

40%+

4 80.o

16.7

1 20.0

1. 1

APPENDIX 4 (Continued) Phi I ippines:

Distribution of Preference lta.s

Tariff cuts BTN

No~

6

22

10-19%

0-9%

%

2.4

lCO#)

4.5

50.0

13 2.0

59.1

20-29%

8

30-39%

36.4

3.2

7

54

5.9

41 6.3

75.9

11 4.4

20.4

2 25.0

3.7

8

249

27.2

194 29.8

77.9

52 20.9

20.9

3 37.5

1.2

9

77

8.4

36 5.5

46.7

41 16.5

53.2

8 100.0

0.9

100.0

249 100.0

27.2

915

651 100.0

71. 1

TOTAL

2 100.0

0.2

Number of 7-digit items. # No tar i tt cut.

@

SOURCE:

Asean Preferential Tariffs (Singapore:

40%+

Ministry of Trade and Industry, 1981).

5 100.0

0.5

APPENDIX 5

Singapore:

Distribution of Preference 11"8115

Tariff cuts BTN

No.@

0

120

100

11.2

IQ-19%

0-9%

%

110(0*) 12.2

91.7

67(0*)

67.0

178

16.6

173(0*) 19.2

97.2

4.2

24.0

6

6.0

7.7

78(0*) 8.7

94.0

4

92

8.6

85(0*) 9.4

92.4

44(0*) 4.9

100.0

4.1

22.2

5

2.8

4.0

83

44

5

18.5

19.0

3

- 5

24

3.3

9. 1 7.4

2

4 3.2

20-29%

3 2.4

3.6

2 7.4

2.4

6

6.5

1 3.7

1. 1

4.8

30-39%

40%

I 6.7 2(40%> 1(100%) 200

0.8

3.0

APPENDIX 5 (Continued) Singapore:

Disfi"lbution of Preference 11"-.s

Tariff cuts BTN

No.@

6

125

11.7

45(0*) 5.0

36.0

7

84

7.8

83(0*) 9.2

98.8

8

130

12. I

115(0*) 12.8

88.5

14 11. 1

10.8

1 3.7

o.8

9

117

10.9

101 CO*> 11.2

86.3

7 5.5

6.0

4 14.8

3.4

2 50.0

1. 7

27 100.0

2.5

4 100.0

3.3

100.0

126 100.0

11.7

1073

901 100.0

84.0

TOTAL

0-9%

%

10-19% 63 50.0

8 24.6

6.4

40%+

30-39% 2 50.0

1.6

5(50%> 46.7 1(

@Number of 7-digit items. *Zero tariff binding. SOURCE:

50.4

20-29%

Ministry of Trade and Industry, Singapore.

5.6

100%>

2(40%> 20.0 15 100.0

2.6

1.4

APPENDIX 6 Thai land:

Dis1Tibu'tlon of Preference 11·a.s

Tariff cuts BTN

1'-b.@

%

0

58

7.1

45

5.5

D-9%

10-19%

1(6%) 50.0

2.2

1(0*) 50.0

0.6

50 9.5

86.21

33

20-29%

5 3.5

8.6

73.3

4 2.8

8.9

7 6.1

15.6

116 22.0

65.5

18 12.5

10.2

41 35.96

23.2

14.2

6.3

3

177

21.6

3

113

13.8

79 15.0

69.9

18 12.5

15.9

16 14.0

4

186

22.7

64 12. 1

34.4

78 54.2

41.9

13

11 2. 1

91.7

12

1.5

5.2

2.6

2

5

40%+

30-39%

7.0

11.4

1 0.9

8.3

1 3.1

0.6

31 96.9

16.7

APPENDIX 6 (Continued) lba i Iand:

Distribution of Preference It-ems

Tar itt cuts No.@

%

6

26

3.2

26 4.9

100.0

7

60

7.3

34 6.4

56.7

4 2.8

6.7

22 19.3

36.7

8

86

10.5

70 13.3

81.4

6 4.2

7.0

10 8.8

11.6

9

56

6.8

44 8.3

78.6

11 7.6

19.6

1 0.9

1.8

114 100.0

13.9

100.0

144 100.0

17.6

819

527 100.0

64.3

TOTAL

BTN

@

*

0-9%

2 100.0

0.2

10-19%

20-29%

40%+

30-39%

Number of 7-digit items. Existing tariff = 0 and LTQC.

SOURCE:

ASEAN Preferential Tariffs (Singapore:

Ministry of Trade and Industry, 1981).

32 100.0

3.9

.....Qj

> Qj

-I

~

.,..

~

.....

C7l .,..

'0 I N

Qj

..c ~

~

"'

Ill

!

,_ >< ........ Cl

z: w

CL CL

c:(

~ .....

Qj

IJ

~

~ ~

Cl.

1+0

c:

.,..0

~

::I

...0 .,..

"'

s..

~

.,..Ill 0 N

.,.."'

Ill Qj

c:

0 '0

.....c:

APPENDIX 8 Malaysia:

Distribution of Preference Items at the 2-digit BTN Level

%

20

10

l.r"l

0

OOO"l

"" """"

2

...

ll