Sat, 02 Jan 2010
China and the 10-country Association of South East Asian Nations on Friday launched the final stage of the world’s biggest regional trade agreement, measured by population, in spite of Indonesia’s last-minute attempts at renegotiation.

The launch of the China-Asean Free Trade Agreement, which covers almost 1.9bn people, coincides with the implementation of a similar deal with Australia and New Zealand and a deepening of Asean’s own internal trading agreements.
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Taken together with earlier deals with Japan, South Korea and India, the New Year day accord puts south-east Asia at the centre of a series of regional trade agreements extending from Beijing to Wellington and from New Delhi to Tokyo.

The China-Asean deal takes effect following the completion last summer of an agreement on investment rules, the last leg of an eight-year negotiating marathon that produced earlier agreements on goods and services.

Tariffs have been falling since 2005, with 90 per cent of goods due to be tariff free from Friday for China and the six core Asean members Indonesia, the Philippines, Thailand, Singapore, Malaysia and Brunei. The target is 2015 for the other four Laos, Cambodia, Burma and Vietnam.

However, the deal remains short of genuine free trade. The trade in goods agreement provides for each country to register hundreds of sensitive goods on which tariffs will continue to apply, in many cases until at least 2020.

Sensitive products include various types of electronic equipment, motor vehicles and automotive parts and chemicals, as well as items such as popcorn, snowboarding equipment and toilet paper.

The deal creates the third largest regional trading agreement by value after the European Union and the North American Free Trade Agreement, covering countries with mutual trade flows of $231bn in 2008 and combined gross domestic product of about $6,000bn, according to China’s ministry of commerce.

Jayant Menon, principal economist in the Asian Development Bank’s office of regional economic integration, said it could eventually lead to a wider trade agreement involving Asean, China, Japan, South Korea and the US an idea floated in November by Yukio Hatoyama, the Japanese prime minister. “There is a lot of expectation of this FTA,” said Mr Menon.

Surin Pitsuwan, Asean’s secretary-general, said the agreement would allow the Asean countries to benefit more from the growth of China, which is already south-east Asia’s third largest trading partner, with about 11 per cent of total two-way trade. “When China grows, Asean has to ensure that we are on the supply line towards that growth,” he said.

Asean, which has a population of 580m and a combined economy bigger than that of India, has substantial reserves of resources such as oil, natural gas, coal and other commodities that China desperately needs to keep its factories operating.

China, which runs a substantial trade surplus with Asean, stands to benefit hugely from easier access to the bloc as it seeks new Asian markets for goods that can no longer be sold to consumers in Europe and North America.

“China and the Asean countries have many products that complement each other,” Zhang Kening, a director at the ministry of commerce, said earlier this week. “We can see great potential to adjust our trade patterns by importing more from Asean countries.”

The deal remains deeply controversial within the region, where suspicion of China’s economic clout and political ambitions vies with the desire to take advantage of the export potential of its fast-growing economy.

Indonesia has led opposition to the pact, seeking to delay its implementation because of fears that sectors from steel and petrochemicals to cosmetics and herbal medicines would face overwhelming competition from cheap Chinese imports.

Jakarta has announced a review of the impact of the deal, but drew back from tougher action after the industry minister told parliament his attempts to renegotiate elements of the deal with the other 10 countries had failed.

The co-ordinating minister for the economy warned on Wednesday that there could still be clashes between Jakarta and Beijing. “When a nation has cheap products, we must see whether there’s unfair trade in it, such as unfair subsidies,” he said. “We must be proactive.”



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