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Effects of AFTA-CEPT on ASEAN Member

Many years ago, many initiatives of developing countries to establish regional economic integration, such as ASEAN Free Trade Area were taken by heads of government, or stimulated by international organizations, without any involvement of the private sector. AFTA is a trade bloc agreement by the Association of Southeast Asian Nations in order to support local manufacturing in all ASEAN countries. When it is originally signed, ASEAN had 6 members, which are Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia in 1999. By now, AFTA consist of 10 countries of ASEAN. All of them had signed the AFTA agreement and for the 4 latecomers (CLMV) they had been given longer time to meet AFTA’s tariffing reduction obligations.
The ASEAN Heads of Government hope economics in ASEAN become more effective and competitive in era of globalization by increasing the ASEAN’s production through the removal of non-tariff barriers and low intra-regional tariffs (range from 0 to 5%). Thus, companies within ASEAN region (free trade area) can enjoy advantage of the economics of scale. To achieve those, an implementing mechanism called the Common Effective Preferential Tariff (CEPT) scheme was established and being signed in 1992. AFTA is a collective effort by ASEAN members to reduce or eliminate tariffs on intra-ASEAN trade. The objective of AFTA is to create an integrated domestic market within ASEAN and increase the region’s competitive edge as a production base in the world market.
Enhanced CEPT Agreement 2007 In August 2007, ASEAN agreed to review and update the CEPT Agreement to become a comprehensive Trade in Goods (TIG) Agreement for AFTA. The reasons are to update some provisions to accommodate the current development in ASEAN as well as to amend all past amendments in CEPT agreements in different protocols to be merged into new comprehensive agreement. Besides, the past agreements are found to have some inconsistencies between the provisions in the CEPT, so these problems can be solved. However, how far the AFTA-CEPT helps in liberalization of the market region and what kind of impacts of AFTA-CEPT can bring to ASEAN in social and economic aspects?
Advantages of AFTA-CEPT for ASEAN Member The main advantage of AFTA is increased intra-regional trade and investment and improved resource allocation within the region. These benefits can be captured as tariffs and other trade barriers are reduced and markets are integrated. But what kind of tariffs or trade barriers stated in CEPT scheme?
2 categories of tariff reductions in CEPT scheme:
The fast-track schedule for tariff reduction applies to 15 product groups. Fast track reduction aims at reducing tariffs on items currently above 20% or lower to 5% by the year 1998. Products on fast track scheme are vegetable oils, cement, pharmaceuticals, chemical fertilizers, plastics, rubber products, leather or hide products, pulp and paper, textiles and apparel, ceramic, glass products, gems, copper cathodes, electrical appliances, and wooden and rattan furniture. Actually, the sectors covered by the Fast Track program are more than 15 products that had been originally agreed in the 1992 Singapore Declaration. The additional products are mechanical appliances and mineral products.
For normal track schedule applies to other manufactured goods and it will face tariff reductions in 2 steps. Tariffs currently above 20% must be reduced to below 5% by year 2003, while tariffs currently at 20% or less than it will reduce it to below 5% by the year 2000.
Non Tariffs Barriers (NTBs) mean measures other than tariffs which effectively prohibit or restrict import or export of products within Member States.
Sources: Article 1 Agreement on the Common Effective Preferential Tariff Scheme for the AFTA Example of NTB can be import bans, product standards, import licenses, “Buy National” policy, and Intellectual property laws like patents or copyrights, restrictive licenses, seasonal import regimes, bribery and corruption.
Quantitative restrictions means restrict or prohibit on trade on other member states through quotas, licenses, and requirements. For example the most common is import quota.
Foreign exchange restrictions are the measurements taken by the member states in the form of restrictions and other administrative procedures in foreign exchange and thus believe can be effective in restricting trade.
Through greater market integration and trade liberalization, AFTA will contribute to achieve higher income per capita and economic welfare, and greater economic resilience for the regional economies. AFTA facilitates specialization on the basis of comparative advantage, technology transfer among businesses, and improved resource pricing and management.
Intra-ASEAN trade has been increasing steadily by 100.33% from US$89.7 billion in 1993 to US$179.7 billion in 2000 (Table 1). At the same time, the total global trades of ASEAN countries contribute to US432.0 billion in 1993 to US$782.7 billion in 2000. This shows that percentage of intra-ASEAN trade has been increasing from 20.76% in year 1993 to 22.96% in 2000. We can thus see that intra-ASEAN trade is playing increasing important role in promote the economy development of ASEAN countries.
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The potential of AFTA to further increase intra-regional trade cannot be ignored. As a single market, AFTA has an estimated population of 513 million and an increasing combined national income from US469.011 billion in1998 to US$580.2 billion in 2000 (Table 2).
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With the enlarge market, AFTA provides an opportunity for ASEAN enterprises to benefit from larger economies of scale. Businesses are in a better position to review their operational structures by taking into consideration of a larger market potential than they used to. It is a chance for them to modernize their operations by investing in modern technologies and larger plants to cater for a larger market. Thus, technologies can be exchange and enhanced as the labors can become even more skillful. Moreover, there can be help to promote research and development (R

Evolution of foreign worker in Malaysia

Decades earlier, the movement of people from one place to another exist always. Pending their own reasons or motive, people have been moving for centuries from one place to another in order to continue their survival. To date, immigration amongst different countries is no longer a new phenomenon. At the time of world war, many inhabitants were displaced to other nation due to man-made and natural disasters. Until now, the phenomenon still exists which are primarily driven by poverty in their home country. Thus, there are both pull and push factors behind the migration of labour. The situation applies to Malaysia population as well.
Multi-ethnic population in Malaysia demonstrated the long history of migration. About 40 per cent of its 26 million people are of immigrants. Due to its geographical location at the crossroads of Southeast Asia, Malaysia had for centuries been open to traders and travellers from the East and the West (Zahid Zamir. 2006). It is during the time of late nineteenth and early twentieth centuries that the inflow of foreign workers especially from the Indian subcontinent, China and Indonesia started to come into Malaysia.
During the time of British colony, our country confronted with serious labour shortage. A solution has been taken to import the cheap labour resources from India and China to work in tin mines, rubber plantation and infrastructure development. In that period, these immigrant workers contributed cheap as well as adequate supply of local work force when local workers either found not suitable or interested in working under the same harsh conditions faced by the immigrant labours (Zahib Zamir, 2006). With the incoming foreign workers especially from China and India to work in the plantations, mines and the construction sectors, an alien community has formed before the independent of 1957.
After gaining independence in 1957 and the establishment of the periodic 5 year Malaysia plan, the increasing population has prompted the country to put emphasis on housing need. As the construction industry outgrow the general economy, labour shortage were particularly acute in many indispensable trades such as concreting, carpentry, bricklaying, painting, tiling, bar bending, and plumbing by the late 1980s and 1990s (Abdul-Aziz, 1995). Phenomenon where local worker markets could not provide sufficient needs happen on that time. The agriculture sector was the first to experience labour shortage and followed by the construction and manufacturing sectors. Foreign workers from neighbouring countries seek employment as workers in these sectors (International Migrations in Malaysia, 27 Nov 2006). Basically, foreign workers who involve in construction industry come from different nationality such as Indonesia, Bangladesh, Philippines, Thailand, Pakistan and others.
To date, the presence of foreign workers in Malaysia has become a norm. It is an immediate measurement to solve the labour shortage problem. The foreign workers has become part of Malaysia society as the demand for workforce is growing and poor work environment and image are accelerating existing workers to leave the construction field. In the recent time, foreign workers being largely absorbs to work in tight labour market conditions and low paying fields such as construction industry.
Both developed and developing countries are apt to prohibit foreign worker from being legally employed for the purpose of limiting the number of illegal entrants to protect their domestic labourers. Foreign worker are allow to be employed in selected sectors such as plantation, manufacture as well as construction industry with specify limitations and regulations.
2.3 BASIC DATA ON FOREIGN WORKER According to Economic Report 2004/2005, total number of foreign workers rose from 4% of total employment in 1990 to about 10.7% in 1997 and 9% in 2001. As at July 2004, there are about 1.3 million registered foreign workers, constituting 12% of total employment in the country. Foreign workers have steadily increased in number over the past two decades and they have become a key part of the economy for most of the countries. However, for various reasons, the Government and the employers – both small and big – have tended to down play the importance of foreign labour in the country’s development.
The primary objective of foreign worker to come and work in Malaysia was to make some fortune and return their home after some time. Combination of factors including the unattractiveness of manual construction work to local youths, an expanding manufacturing sector that offer better employment conditions, labour attrition, increasing opportunities for tertiary education, a lower birth rate and out-migration of Malaysia workers to high wages country such as Singapore and Japan have make the foreign worker become vital component in construction workforce in Malaysia (Abdul Rashid, Abdul Aziz, 2001). Local people are no longer able to sustain the demand and needs of construction industry (Azian, 2004). In order to maintain the rapid expansion of construction industry, foreign workers is the option to fulfil the needs.
According to statistic on regularized foreign workers (Figure 2.1), it indicates that construction sector is the most active in utilizing foreign worker. According to Ahmad, 1996, the Malaysia construction industry has relied on foreign work force since early of 1980s. An estimated 60% of manual workers in the construction industry were foreign nationals in 1987 (Gill, 1988), a figure which increase to 70% in 1991 (Pillai, 1992) and then 80% in 1995 (Balaisegaram and Pillai, 1996). Since then, the local apprentices shed away from working in construction industry as they feel that working together with these migrant workers was not conducive. Furthermore, the shortages of construction workers was largely rooted from such well-known causes such as poor image, uncertainty in career path, lack of training and education, declining wages, poor work environment, and the transient nature of construction workers. All of the reasons above have caused large proportions of foreign workers in Malaysia construction industry. The growth of foreign worker in construction industry is continuing.
Figure 2.1 Number of regularized foreign workers by nationality (July 1992- December 1995).
(Source; Immigration Department, as quoted in Kassim (1996))
From the statistic of Annual Labour Force Survey conducted by the Department of Statistics, it indicates that the number of legal foreign workers in Malaysia rose to 1,359,632 as at July 2004. Foreign workers are employed in all major sectors of the economy, with manufacturing accounting the largest share at 30.5%, services (25%), agriculture (24.7%) and construction (19.8%). These workers are normally employed in jobs critics label the 3D that is dangerous, difficult and dirty. In others words foreign workers are employ in position where local refused to do.
Figure 2.2 Percentages of Legal Foreign Workers in Malaysia by Country
(Source: Annual Labour Force Survey, Department of Statistics)
From the Figure 2.2 above, majority of foreign workers are from Indonesia, averaging 66.5% of total foreign workers, followed by Nepal (9.2%), Bangladesh (8.0%), India (4.5%) and Myanmar (4.2%). By viewing the steadily rose amount on foreign workers, the Home Minister Datuk Seri Hishammuddin Hussein had announced that the government plans to reduce the number of foreign workers to 1.5 million in three years.
MCA president Datuk Seri Dr Chua Soi Lek had recently called for the government to conduct a comprehensive study of the country’s dependence on foreign labour. Dr Chua noted that the country’s local labour force was not sufficient to maintain local industries despite the government’s ambitious plans for a high-income economy under the New Economic Model. Hence, the strategy of government to reduce Malaysian dependency on foreign workers will be done after a long run. As long as there is unlimited supply of foreign workers, employer will continue rely on them to their advantage.
2.4 ADMISSION OF FOREIGN WORKER IN MALAYSIA Certain criteria and process have to be observed by foreign workers for entry into Malaysia. Started from 1 August 2005, application for foreign worker is submitted to a One-Stop Centre located in the Immigration Department of Malaysia. There are two types of migrants in Malaysia that is temporary migrants and permanent migrants. For those foreign workers that come into Malaysia in a specified period with single entry visa from Malaysia Embassy abroad, they are considered as temporary migrants. Initially, foreign worker is allowed to work for 3 years only and upon application be extended from year to year to the fifth year. For extension after fifth year, employer must obtain declaration from National Vocational Training Council (NVTC) or Construction Industry Development Board (CIDB) that the particular worker is a skilled worker.
Basically, foreign workers are recruited to act as construction workers in the construction industry and work predominantly on construction sites and are typically engaged in aspects of the industry other than design or finance (Wikipedia, the free encyclopaedia). The job application of foreign workers includes bricklayer, carpenter, concrete finisher, fencer, labourer and etc. Foreign worker who wish to extend working period in Malaysia must obtain either Malaysian Skills Certificate level I

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