MLBA13: February / March 2010

 

 

 

 

Although the Asean free trade agreement (AFTA) has been liberalising various Southeast Asian economic sectors since the 1990s, tariffs on Asean agribusiness were only cut at the beginning of 2010. Yet, the investment trends that keynote AFTA predate its implementation by more than a decade and made AFTA possible.

 

At the start of 2010, founding Asean members Thailand, Brunei, Indonesia, Malaysia, the Philippines and Singapore cut tariffs from as high as 40-50% to 0-5% on all major meat lines. Newer, more economically immature Asean states Cambodia, Laos, Myanmar and Vietnam, will have their meat processing sectors similarly liberalised in 2015.

 

All this however, does not give voice to the size of the challenge: Located amidst a regional population exceeding 500 million, mostly rural people, Asean meat processing is a labour-intensive, low productivity enterprise. At the same time, it helps ensure social stability among the lowest, least educated members of their respective societies.

 

Yet, within Asean itself, the need for the meat sector to rationalise and modernise is stark and glaring. With Thai integrators playing the role of catalyst, AFTA's is designed to consolidate Asean meat processing so that it becomes strong enough to stand up to impending global competition. Only after AFTA rationalises regional Asean meat processing will it be exposed to global competition; but that upcoming liberalisation round is still 15 to 20 years away.

 

Essentially, AFTA, despite its legal imperatives, actually reflects changes in the meat processing sector more than it caused it. While its implementation certainly accelerates this process, in actual fact, it was meat processing capital flows that made AFTA's implementation possible, not vice-versa.

 

More than a decade's worth of incremental investments on the part of integrators quietly established a foundation for a free trading environment long before AFTA's formal liberalisation. Consequently, despite the intensive consolidation to come, this prior preparation will make AFTA less economically disruptive than it would otherwise be.