2. WHAT IS A FREE TRADE AREA?
A Free Trade Area is a group of countries that have signed a free-
trade agreement and have few or no price controls in the form of
tariffs or quotas between each other, it would also be considered
an open border. Free trade areas allow the agreeing nations to
focus on their comparative advantages and to produce the goods
they are comparatively more efficient at making, thus increasing
the efficiency and profitability of each country.
3. FREE TRADE AGREEMENTS
Free Trade Agreements (FTAs) have proved to be one of the best
ways to open up foreign markets to exporters. Trade Agreements
reduce barriers to exports, and protect interests and enhance the
rule of law in the FTA partner country. The reduction of trade
barriers and the creation of a more stable and transparent trading
and investment environment make it easier and cheaper for
companies to export their products and services to trading partner
markets.
4. EXAMPLES OF FTA
• ASEAN Free Trade Area (AFTA)
• Asia-Pacific Trade Agreement (APTA)
• Central American Integration System (SICA)
• Central European Free Trade Agreement (CEFTA)
• Common Market for Eastern and Southern Africa (COMESA)
• G-3 Free Trade Agreement (G-3)
• Greater Arab Free Trade Area (GAFTA)
• Dominican Republic–Central America Free Trade Agreement (DR-CAFTA)
• Gulf Cooperation Council (GCC)
• North American Free Trade Agreement (NAFTA)
• Pacific Alliance
• South Asia Free Trade Agreement (SAFTA)
• Southern African Development Community (SADC)
• Southern Common Market (MERCOSUR)
• Trans-Pacific Strategic Economic Partnership (TPP)
5. ASEAN FREE TRADE AREA (AFTA)
ASEAN was first formed in 1967 with six member countries:
Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand
and was subsequently joined by Cambodia, Laos, Myanmar and
Vietnam. The ASEAN Free Trade Area (AFTA) came into force
on 1 January 1993. The ASEAN member countries also signed an
agreement on the Common Effective Preferential Tariff (CEPT)
Scheme on 28 January 1992 to eliminate tariffs and non-tariff
barriers in the region.
6. MAIN OBJECTIVES OF AFTA
The main objectives of the AFTA are to:
• increase the ASEAN region’s competitive advantage as a
single production unit.
• promoting inflow of foreign direct investments (FDI) from
abroad and regional investments.
• expand intra-ASEAN trade and investments.
7. IMPACTS OF AFTA
Effective 1 January 2010, Malaysia with five other ASEAN
Member States is a complete free trade area. These countries
have eliminated import duties on 99 per cent of products in the
Inclusion List and AFTA is almost completely realised among the
ASEAN-6. Malaysia has eliminated duties on 98.74% of its tariff
lines in our ATIGA Tariff Schedules for 2013. We now only have
73 tariff lines or less than 1% (0.59%) that have duties of 5% to
20% covering tropical fruits and tobacco and highly sensitive
products (rice), respectively.
9. IMPACTS OF AFTA
With the reduction and elimination of the import duties,
producers/manufacturers can afford to buy raw materials at a
cheaper price and better quality from ASEAN countries. This
would lead to the reduction in costs of production due to the
elimination and reduction in tariff. Due to the reduction in import
duties, there is an increase in Foreign Direct Investment (FDI)
which has a positive impact on producers/manufacturers and
consumers. In 2012, total Intra-ASEAN FDI was USD20 billion
compared to USD17.6 billion in 2011, a significant increase of
13.6 per cent.
11. IMPACTS OF AFTA
Total exports of ASEAN countries have an increasing trend after the AFTA in 1993.
12. IMPACTS OF AFTA (MALAYSIA)
In Malaysia, the construction industry has had positive real
growth of output since the year 2000 through 2002, while at the
same time maintaining a steady amount of construction GDP
share. In recent years, the growth of construction GDP has
increased positively, from 1.01 percent in 2000, 2.33 percent in
2001, and 2.32 in 2002. The industry remains competitive with
other ACF member countries and this growth was supported by
the rapid expansion in the construction sector. Spending on
expansion can also be seen under the Eighth Malaysian Plan
(2001-2005). The construction industry in Malaysia has slight
linkages with the rest of the economy.
13. IMPACTS OF AFTA (MALAYSIA)
Malaysia : Construction and GDP, 1999-2002.
14. ADVANTAGES OF FTA
• FTAs allow countries to specialize in the production of those
commodities in which they have a comparative advantage.
• FTAs lead to higher productivity by allocating scarce
resources more efficiently to satisfy the needs of the economy.
• Increased competition leads to innovation in technology and
better marketing and distributing strategies.
• Consumers have access to a large variety of products.
• Creates many job opportunities in the export sector and
reduces unemployment.
15. ADVANTAGES OF FTA
• Form diplomatic relations with other countries.
• In conclusion, the economy grows on account of the rise in
standard of living, the increase in gross domestic product and
the increase in real income.
16. DISADVANTAGES OF FTA
• The complexity of the international trading system and can
raise transaction costs for business.
• Domestic economic instability increases as the local markets
become dependent on global imports.
• Domestic industries are open to unsustainable competition.
