Asian trade group opens doors for U.S. expansion.

U.S. companies looking to expand into Southeast Asian nations are finding that a group called ASEAN and an agreement called AFTA can be of immense help in opening doors in certain countries.

The Association of Southeast Asian Nations (ASEAN) was founded on Aug. 8, 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand, the five founding nations. In 1984, Brunei joined the Association.

ASEAN, with its wide diversity of economic interests and levels of development, has evolved slowly into a cohesive regional organization that operates on an informal, consensus-building basis.

In the early years, ASEAN countries focused on dealing with external threats in the region, for example the Vietnam War and China's cultural revolution. However, since the late 1970s, ASEAN had shifted its emphasis from a purely political one to an economic focus.

ASEAN nations in the intervening years have established various preferential trading arrangements, including tariff reductions, incentives to expand trade and investment in member countries, and liberalization of nontariff barriers.

In January 1992, ASEAN member states agreed to further expand economic cooperation by forming an ASEAN Free Trade Area (AFTA).

Under AFTA, manufactured goods and processed agricultural products will undergo tariff reductions. The lowering of high tariffs among ASEAN members will enable companies to improve efficiencies and sourcing within the ASEAN markets.

SIZE OF THE MARKET

From 1975 to 1992, ASEAN has averaged a gross domestic product growth rate of around 6 percent. In 1992, the ASEAN economies comprised over 330 million people, and experienced an average growth rate of almost 6 percent, ranking ASEAN as one of the fastest growing markets in the world. ASEAN, as a whole, is now the United States' fourth largest trading partner. In 1992, U.S.-ASEAN trade reached $60 billion: U.S. exports to ASEAN were $24 billion, and U.S. imports from ASEAN $36 billion. ASEAN's trade surplus ($12 billion) with the United States is larger than with any of its other trade partners.

U.S. investments in ASEAN has grown rapidly since the early 1980s, reaching $13 billion in 1991. ASEAN countries are interested in greater U.S. investment in the region, in part to balance huge investments from Japan and Taiwan. ASEAN now ranks third in Asia as a destination for U.S. investment, behind Japan ($22.9 billion) and Australia ($15.6 billion). Much of U.S. companies' investments have been in higher technology products, particularly electronics, for reexport to the United States and to third-country markets.

Leading U.S. exports to ASEAN include electronics components, aircraft, automatic data processing equipment, sound recordings, medical instruments, and engineering equipment. Leading ASEAN exports include electronics, apparel, footwear, and video recordings and equipment.

FREE TRADE AREA (AFTA)

On Jan. 1, 1992 the six ASEAN countries signed a framework agreement to further economic cooperation among the member states. The framework agreement to form an ASEAN Free Trade Area was slated to commence on Jan. 1, 1993.

However, due to protracted negotiations and a slower than anticipated implementation schedule, the AFTA agreement is now expected to come into force on Jan. 1, 1994.

Under AFTA, tariff reductions will apply to manufactured goods and processed agricultural products. In the first stage, duties on goods currently subject to tariffs of more than 20 percent will be reduced to a maximum of 20 percent. The rate at which the tariff reductions take place is to be decided by each member country, with the first phase expected to take five to eight years. The second stage involves further reductions in tariffs to between 0 and 5 percent, taking between seven to ten years to complete.

Tariff rate cuts will be accelerated for 15 products, including cement, chemicals, pharmaceuticals, fertilizer, plastics, and vegetable oils.

Tariffs on these specific products will be reduced to around 5 percent within ten years. However, each ASEAN country has the right to temporarily exclude certain products from tariff reductions.

This article was reprinted from the U.S. Commerce Department publication, "Business America." Updates on AFTA are available from the Commerce Department's PACRIM HOTLINE at [phone].