ASEAN: Regional Trends in Economic Integration, Export ... - USITC

BOX 7.2 Automotive: Profile of ASEAN Integration
The existing production integration in the ASEAN region has largely been driven by the use of the AICO system by
foreign, particularly Japanese, automakers and parts producers. The AICO system, which was implemented on
November 1, 1996, was included as an element of the automotive Roadmap to promote resource sharing among
ASEAN members in order to increase industrial growth and investment, improve manufacturing scale economies, and
widen the scope of ASEAN-based industries, and thus achieve greater ASEAN integration. a
AICO appears to have been somewhat successful in achieving its goals, at least in the automotive sector. According
to the Philippine Institute for Development Studies, “The AICO Scheme has illustrated a successful integration
initiative of the ASEAN as it encouraged multinational enterprises particularly those in the electronics and automotive
industry to adopt efficient production networks regionwide.” b Within this program, Japanese automakers have been
able to consolidate and rationalize production throughout the region. The automotive industry has accounted for the
majority of the AICO arrangements, and Thailand, Malaysia, Indonesia, and the Philippines have been the leading
beneficiaries of this system, with Toyota being one of the primary movers and beneficiaries of this effort.
As an example of how the AICO system functions, Toyota was able to establish a production system whereby
components from Thailand, Malaysia, and Indonesia were exported to the Philippines for assembly of certain motor
vehicles (e.g., the Toyota Camry and Corolla). In return, Thailand, Malaysia, and Indonesia were obliged to import
certain motor vehicle components from the Philippines for the assembly of designated motor vehicles (e.g., the Kijang
and Soluna) in their respective countries. c In this way, Toyota was able to concentrate the production of components
in individual countries and achieve the economies of scale necessary to produce cost-effectively. Mitsubishi, Honda,
and Nissan used a similar approach in the ASEAN region to concentrate production of certain components in
specified countries, which were then shipped to an ASEAN region vehicle assembly site. Denso (Japan), one of the
world’s leading motor vehicle parts manufacturers, was also able to use this system for production of a wide range of
components, with shipments of parts largely traded among the same four countries.
The program came with certain limitations, however. Governments were concerned with balancing trade within the
industry, which contributed to the obligations to purchase parts. Moreover, any revisions to the production and trading
arrangements required approval by the parties to the agreement. d Additionally, each ASEAN member country applied
its own methodology to the approval process, with no standardization across the region. e
Industry representatives generally indicated that the AICO system is no longer as important, since duties among the
ASEAN-6 were eliminated as of January 1, 2010. As a result, the industry is freed from the paperwork and
government approval process that were required under AICO to benefit from the duty preferences. One U.S.
automaker indicated that under AICO the firm benefited from a 5 percent preferential duty rate for its automotive
products traded within ASEAN, but it no longer participates in the program since duties have been eliminated. f
Similarly, a trade group stated that the AICO is now meaningless because it only provided duty exemptions, and
duties are now very low. g
New applications for AICO arrangements are reportedly on hold, although the program is still in effect for the ASEAN-
4 countries that have yet to fully eliminate their duties. h Some automakers still use the program, however, as it can be
especially helpful in Vietnam. i
a Thailand in the 2000’s, “Industry on the Move,” n.d., 287.
b Aldaba and Yap, Investment and Capital Flows, January 2009, 31.
c Republic of the Philippines, Tariff Commission, Executive Order No. 215, February 15, 2000.
d Industry official, interview by USITC staff, Bangkok, March 16, 2010.
e Lau, “Distinguishing Fiction from Reality,” 2006, 471.
f Industry official, interview by USITC staff, Bangkok, March 15, 2010.
g Association official, interview by USITC staff, Singapore, March 4, 2010.
h Association official, interview by USITC staff, Kuala Lumpur, March 12, 2010.
i Government official, interview by USITC staff, Jakarta, March 1, 2010.
7-8