Module and Activity Number: M5 ACTIVITY 2

Group Number: 2

Hypothetical Export Business: COCONUT OIL

Leader: JOAN MAY P. BATION 100%

Uploaded by: JOAN MAY P. BATION

Members: Percentage Cooperation (100 % being the highest)

AIKYN MAE G. SUMBILON 100%

RICA JEAN TAGURAN 100%

CHARRY MAE RODRIGUEZ 100%

The Philippines has engaged in numerous international trade agreements, one of the most
significant being the ASEAN Free Trade Area (AFTA). Established in 1992, AFTA aimed to enhance
regional trade and economic integration among ASEAN member countries, which include the
Philippines, Indonesia, Malaysia, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia.
The agreement was designed to promote economic growth, increase regional trade, and improve
competitiveness within the ASEAN bloc by reducing or eliminating tariffs on a wide range of goods.
Under AFTA, tariffs on various goods traded between member states were gradually reduced or
eliminated, fostering a freer flow of goods within the region.

Reasons why Philippines engage in ASEAN Free Trade Area (AFTA), international trade agreements:

1. Common Effective Preferential Tariff (CEPT):

The CEPT is AFTA’s primary mechanism for tariff reduction. Under this scheme, tariffs on goods traded
between ASEAN member states were gradually reduced to 0-5%. By 2003, the original ASEAN members,
including the Philippines, had successfully lowered their tariffs to this range for many goods. This move
created a more level playing field for trade among member countries (Dee, 2013).

2. Elimination of Non-Tariff Barriers (NTBs):

While reducing tariffs was a key goal, AFTA also focused on addressing non-tariff barriers (NTBs), such
as quotas and licensing restrictions, which could impede the flow of goods between countries. These
efforts aimed to make trade between ASEAN members more efficient and transparent (Habito, 2015).

3. Rules of Origin:

To benefit from reduced tariffs, goods must meet certain criteria to be considered "ASEAN-made."
These rules of origin helped prevent countries from importing goods from non-ASEAN countries and re-
exporting them with lower tariffs under AFTA.

Impact on the Philippines:

According to Santiago (2020), the Philippines benefited significantly from the AFTA agreement,
particularly in the agricultural and electronics sectors. The lower tariffs opened up broader markets for
Filipino products, leading to an increase in exports. Moreover, it boosted the country’s competitiveness
as domestic industries became more efficient, due to increased exposure to regional competition. For
example, the electronics industry, a vital part of the Philippine economy, saw enhanced access to other
ASEAN markets. However, AFTA also presented challenges, as some local industries struggled to
compete with more developed counterparts in other ASEAN countries. This issue highlights the need for
continued reforms and support for industries that are more vulnerable to external competition.
- Agriculture:

The reduction in tariffs allowed the Philippines to export more agricultural products, such as
coconut, bananas, and sugar, to other ASEAN countries. According to Santiago (2020), these sectors saw
a notable increase in exports, as Philippine products became more competitive in the regional market.
However, some agricultural sectors faced challenges, particularly those unable to compete with cheaper
imports from neighboring ASEAN countries like Thailand and Vietnam.

- Electronics and Manufacturing:

The Philippines' electronics industry, which contributes significantly to the country’s GDP, has
greatly benefited from AFTA. The reduction of tariffs facilitated access to cheaper raw materials from
other ASEAN countries, while also enabling the Philippines to export more electronic products to the
region (Santiago, 2020). The overall effect has been a boost in trade and increased foreign direct
investment (FDI) into the electronics and manufacturing sectors.

- Job Creation and Economic Growth:

AFTA has also contributed to job creation in sectors that have been positively impacted by
regional trade. The increased demand for Philippine goods in ASEAN markets led to more employment
opportunities, especially in manufacturing and agriculture. This, in turn, helped drive economic growth
in the country.

Challenges Faced by the Philippines

Despite the advantages, the Philippines also encountered several challenges under AFTA:

- Competitiveness Issues:

Some local industries, particularly small and medium-sized enterprises (SMEs), struggled to
compete with more developed industries in countries like Malaysia and Singapore. These countries have
more advanced infrastructure, higher productivity, and stronger business environments, which put
pressure on Philippine industries to improve their competitiveness.

- Dependency on Exports:

The Philippines' heavy reliance on exporting certain products, such as electronics and
agricultural goods, made it vulnerable to external economic shocks. For instance, global demand
fluctuations and economic downturns in other ASEAN countries can have an outsized impact on the
Philippine economy, as noted by Habito (2015).

- Non-Tariff Barriers:

While AFTA sought to eliminate NTBs, some barriers persist. For example, administrative
inefficiencies, customs procedures, and technical standards can still hinder smooth trade flows within
the region, affecting the Philippines’ ability to fully benefit from the agreement
Conclusion

The ASEAN Free Trade Area (AFTA) has been a critical factor in shaping the Philippines’ trade
policies and economic growth over the past few decades. By opening up markets, reducing tariffs, and
encouraging competition, AFTA has allowed the Philippines to integrate more deeply into the regional
economy. The country has seen considerable benefits, especially in key sectors such as agriculture and
electronics, while also encountering challenges related to competitiveness and non-tariff barriers.
Moving forward, the Philippines must continue to strengthen its industries and improve infrastructure
to maximize its benefits from AFTA and other international trade agreements.

References

- Santiago, A. (2020). Philippines' role in the ASEAN Free Trade Agreement. ProQuest Central.

- Dee, P. (2013). The Trade Policy Review: ASEAN Economic Community. Asian Development Bank.

- Habito, C. (2015). Philippine Trade Performance under AFTA. Google Scholar.

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