Wednesday, February 20, 2013

Malaysia-Singapore Political Obstacle Removed, but Still No Full Implementation of the AFAGIT

Yesterday Singapore’s and Malaysia’s prime ministers announced plans to build a high-speed rail link between Kuala Lumpur and Singapore.  This is just the latest progress in improving cross-straits relations.  Hopefully, this will help lead to ending the long delay in full implementation of the ASEAN Framework Agreement on Goods in Transit (AFAGIT), a key but low-profile aspect of the ASEAN Economic Community (AEC).

The issue of goods in transit matters because the AEC is not a customs union.  This is because national import duty rates of the individual member states vary widely.  Each member state can impose its own duty rates on non-ASEAN origin goods, which would not be the case in a customs union, where rates on externally-originating goods are the same, regardless of where the goods enter.  ASEAN-origin goods, on the other hand, receive the preferential tariff rate under the ASEAN Trade in Goods Agreement (ATIGA) when they are traded between ASEAN member states. 

Thus, the problem arises when an ASEAN-origin good has to cross multiple national borders within ASEAN.  The Form D origin documents and other import documentation must be presented each time the good crosses a border, which I explained can lead to a good losing its ASEAN-origin status.

This issue should have been resolved by the AFAGIT, which would allow for special procedures for goods in transit between ASEAN member states to reach their ultimate destination.  The AFAGIT was signed in 1998 and was intended to be part of the implementation of the ASEAN Free Trade Agreement (AFTA), the predecessor of the ATIGA.  The problem was that two major protocols of the AFAGIT were never agreed upon: Protocol 2, the designation of frontier posts, and Protocol 7, the establishment of a customs transit system. 

Both protocols were delayed for years because of the bilateral dispute between Singapore and Malaysia regarding the railway that links the two countries.  Singapore insisted on having its immigration and customs facilities for exit at the Woodlands checkpoint in the northern part of the island.  Malaysia insisted on having its immigration and customs facilities at the Tanjong Pagar train station at the southern part of the island, thereby asserting sovereignty over the rail bed between Tanjong Pagar and Woodlands.  Hence the two countries could not agree on the frontier posts, nor the limits of their territory, leading to the impasse over the AFAGIT protocols.

The dispute was resolved in 2010, leading to the closure of Tanjong Pagar in 2011 and now yesterday’s announcement of the high-speed rail.  The major political obstacle to full implementation of the AFAGIT has been removed yet we are still waiting, 15 years later, for the protocols to be implemented.  ASEAN’s leadership has promised that this will happen and an ASEAN committee of government experts is working on this. But like much of ASEAN, full implementation of the AFAGIT will require additional patience by those hoping for full and effective implementation of the AEC.  Hopefully this latest positive development in Singapore-Malaysia relations will help add to the impetus for full implementation of the AFAGIT.