Utilization of Preferential Tariff under ASEAN Free Trade Area (AFTA): Case of Malaysia

Abstract

Reducing numbers of tariff lines to 0% and increase in intra-regional trade are often indicators of success of ASEAN Free Trade Area (AFTA). With more members liberalizing their economies and actively reducing the Most Favoured Nation (MFN) rates, the preferential tariff under AFTA would have a minimal impact on trade patterns unless the preferential tariff treatment is effective. Based on the value of Certificate of Origin (COO) and its export to ASEAN countries, this paper plans to estimate and analyse the utilization of tariffs under AFTA in the case of Malaysia for the period of 2007-2011 to examine the effectiveness of preferential tariffs under AFTA. Analysis is expanded with a “MFN proxy†by excluding Singapore. The results show that the utilization rates remain low and this suggests that preferential tariff rates are only used for the similar products and there will always be a limited level of utilization as some product lines were liberated under MFN tariffs.