A Foothold in Perak

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From the Editor’s Desk

by Fathol Zaman Bukhari

A trade exposition in June at Stadium Indera Mulia Ipoh will herald the entry of China into Malaysia, and Perak has, unwittingly, become the beneficiary. This marks the beginning of the long awaited ASEAN Free Trade Agreement (AFTA) which was signed in Singapore on January 28, 1992.

Background

At the time of signing the Association of South East Asian Nations (ASEAN) had six members, namely Brunei, Indonesia, Philippines, Singapore, Thailand and Malaysia. Four other countries, Laos (1995), Vietnam and Myanmar (1997) and Cambodia (1999) joined subsequently making it ten in all. Signing the AFTA agreement was made conditional for the four countries to join the Association but they were given a longer time frame to meet the agreements’ obligations.

The objectives of AFTA are two-fold:

Increase ASEAN’s competitive edge as a production base through the elimination of tariffs and non-tariff barriers within member countries.

Attract more foreign direct investment to ASEAN.

The mechanism for achieving the objectives above is the Common Effective Preferential Tariff scheme, which established a scheduled reduction of tariffs beginning in 1992. The other objective of AFTA, one which is more relevant, is to counter the growing economic prowess of China and India.

Tariffs Reduction

The free trade agreement reduced tariffs on 7,881 products or 90 per cent of imported goods to zero. This reduction took effect in China and the six original members of the Association. The remaining four countries will follow suit in 2015. The average tariff rate on Chinese goods sold in ASEAN countries decreased from 12.8 to 0.6 per cent on January 1, 2010, pending full implementation in the remaining countries by 2015. China offered similar privileges to goods imported from ASEAN countries.

The six original ASEAN members also reduced tariffs on 99 per cent of goods traded between them to zero and this too became effective in January 2010. However, things seem good on paper only, as Malaysia continues to impose taxes on imported cars to protect its infantile car industry. The controversial APs (Approved Permits) are still given to crony companies to enable them to bring in luxury cars without taxation. Revenue in excess of RM100 million is lost annually because of these permits, which the government promised to terminate by 2015.

Reducing tariffs and taxes have its downside. Such action will have a negative impact on local producers when it comes to open competition. Economies of scales decide the competitiveness of goods manufactured and since local producers do not necessarily have the capacity to compete on an even keel, they seek protection from the government. Protection comes in the form of tariffs which invariably make imported goods more expensive than the local alternatives. Protectionism is a mechanism to keep local products saleable within the country. But it is another thing when the goods are sold abroad. The difference in price of a similar Proton model in the country and in Dubai is a case in point.

Trade Exposition

The upcoming trade exposition in June will see Chinese-made goods being exhibited for viewing by the general public. The expo will provide a window of opportunities for local businessmen to participate in joint-ventures with their Chinese partners. Among the manufactured items to go on show are men’s and women’s footwear, electrical appliances, furniture, apparels, etc. They are among the 29 items identified for display. All of these products are from the many individually-owned and private enterprises of Wenzhou, a major city in south-eastern Zhejiang province of the People’s Republic of China.

A dedicated team was established early this year to undertake the responsibility of organising the trade fair. The Wenzhou (M) Trade City Group Sdn Bhd is essentially a liaison team consisting of officers from the China Council for the Promotion of International Trade (Wenzhou Sub-Council) and officials from the Perak State government who act as interpreters and co-coordinators. Jhang Xiao Qun or Charlie, as he prefers to be called, is the liaison team’s chief.

Litmus Test

Ipoh Echo met up with Charlie at Towers Regency Ipoh recently, where the team is currently located, and was briefed on the pending exhibition.

“Planning for the fair was initiated in January in conjunction with the easing of trade restrictions between China and Malaysia”, he said. “Response from the Wenzhou manufacturers has been good. Our target of 300 exhibitors was oversubscribed.” The overwhelming response is indicative of the Wenzhou business community’s faith in the fair. “Only quality products will be on display”, Charlie remarked, mindful of the perception the world has on Chinese-made goods.

“We’ve no desire to retail these goods in Malaysia but to establish a manufacturing hub in Perak”, Charlie revealed, dismissing fears of Perak being made a dumping ground for Chinese-made products. “We’ll manufacture the goods locally, mark them as “Made in Malaysia” before exporting overseas”, he quipped. Ipoh was picked as the team’s base over Penang and Kuala Lumpur because it is less hectic.

The Wenzhou Brand-name and Quality Products Exposition at Stadium Indera Mulia from June 24 to 27 will be a litmus test for the effectiveness of AFTA. So far there has been too much talk but little action. Many have doubted its viability believing the worse would befall our local manufacturers. But the die is cast. We shall now wait for the outcome with bated breath.

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