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 AFTAs tariffing reduction obligation
The ASEAN Heads of Government hope economics in ASEAN become more
effective and competitive in era of globalization by increasing the ASEANs
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
regions competitive edge as a production base in the world market. AFTA's main
objective is to create an integrated market within ASEAN in order to increase the
region's competitive edge as compared to the rest of the developing world.
The purpose of AFTA is to help products produced within ASEAN compete in the
global market, attract more Foreign Direct Investment to the region, and increase
intra-ASEAN trade. According to Indonesias Center of State Revenue Policy
Fiscal Policy Agency (Pusat Kebijakan Pendapatan Negara Badan Kebijakan
Fiskal), there are several benefits of AFTA for Indonesia, i.e., greater and wider
market opportunity for Indonesian products, lower production costs for
Indonesian businesses that require capital goods and raw/auxiliary materials
from other ASEAN member countries, more diverse product options in the
domestic market for consumers, and greater opportunity to enter into alliances
with business actors from other ASEAN member countries.

The next step is the establishment of the ASEAN Economic Community (AEC),
including AFTA, with the main objectives of creating a single market and
production base, a highly competitive economic region of equitable economic
development, and a region fully integrated into the global economy by 2015.
AEC would transform ASEAN into a region with free movement of goods, services,
investment, skilled labor, and capital. A key characteristic of AEC is a single
market and production base.
While businesses may benefit from the highly competitive market as a venue to
expand their production and networks, small enterprises and poorly educated

laborers may find it difficult to compete with the free flow of goods, services, and
skilled workers.

The Indonesian government will play a pivotal role in reconciling this gap.
Comprehensive and clear regulations regarding the implementation of AFTA and
AEC could help all of Indonesia benefit from an integrated market of high-quality
goods, services, and human resources.