At the 4th ASEAN Summit in January 1992, the ASEAN Heads of Government agreed to establish an ASEAN Free Trade Area (AFTA) by the year 2008 to open up their economies in the era of globalization. �During the ASEAN Economic Ministers (AEM) Meeting in September 1994, the target date was advanced to 2003.

A free trade area would allow the companies within the ASEAN region to take advantage of the economies of scale. �The main implementing mechanism of AFTA is the Common Effective Preferential Tariff (CEPT) Scheme.�

The Common Effective Preferential Tariff Scheme, or CEPT, is a cooperative arrangement among ASEAN member countries that will reduce intra-regional tariffs and remove non-tariff barriers over a 10-year period commencing January 1, 1993. The goal of the Scheme is to reduce tariffs on all manufactured goods to 0-5% by the year 2003.�

Generally, rules of origin rest on the concept of "substantial transformation" so that origin is assigned to the country where the last substantial transformation occurred. Substantial transformation may be defined on the basis of a change in tariff heading, achieving a threshold proportion of value-added, or on the basis of certain manufacturing processes. In AFTA, the rule of origin is based on General Rule , i.e. value-added with the threshold level set at least 40% of FOB value of the product or CTH (Change of Tariff Heading), and Product Specific Rules: PSRs , i.e. changes of tariff classification, value added, a specific processing requirement, the use of wholly obtained inputs or, frequently, a combination of the foregoing.�

In addition, such goods are required to meet direct consignment rules and other applicable requirements in the Rules of Origin under ASEAN Common Effective Preferential Tariff (CEPT) Scheme.