ASEAN, China to sign FTA framework

ASEAN, China to sign FTA framework

Martin Abbugao, Agence France-Presse, Singapore

Leaders of China and Southeast Asian countries meeting in Cambodia next week will sign a framework pact on the creation of the world's largest free-trade zone within the decade.

Tariff cuts on selected farm products under an "early harvest package" will start as early as next year, well ahead of the full implementation of the proposed Association of Southeast Asian Nations (ASEAN)-China Free Trade Agreement (FTA), according to the framework.

In addition, both parties will also "explore the feasibility of an early harvest program for trade in services in early 2003," a draft of the framework obtained by AFP said.

Senior economic officials from ASEAN and China who met in Singapore in mid-October put the finishing touches to the document to be presented at the Nov. 3-5 annual ASEAN summit in Phnom Penh, which would also gather the leaders of Japan and South Korea.

Under the framework, negotiations will start next year for a full FTA covering trade goods and services as well as investments.

It also provides for a work program covering various areas of economic cooperation and allow for an "early harvest" of benefits before the pact's full implementation.

If realized, the free trade zone will be the biggest in the world covering 1.7 billion people, an aggregate gross domestic product of almost US$2.0 trillion and two way trade worth $1.2 trillion.

Analysts said the FTA will provide an avenue for ASEAN, whose image has been tarnished by political troubles in some key member states, to engage its giant neighbor as an economic partner rather than a competitor.

"It means we have freer access to the huge domestic market of China. This is where ASEAN should explore the possible areas where we can benefit from China's free market," said Jose Tongzon, a China watcher and economics professor at the National University of Singapore.

In Phnom Penh, the leaders will make the "final decision" on when the FTA will be fully established, a spokesman for the Singapore trade ministry said.

One possible date is 2010 for China and the six original ASEAN states -- Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand -- and 2015 for less developed ASEAN members Cambodia, Laos, Myanmar and Vietnam, the spokesman said.

A highlight of the framework is the provision of the "early harvest package" under which ASEAN and China will progressively eliminate tariffs on selected farm products within three years starting next year even before the FTA's full effectivity.

Products covered under the early harvest package are live animals, meat and edible meat offal, fish, dairy produce, other animals products, live trees, edible vegetables and fruits and nuts.

A few "additional products" from other sectors agreed upon by China and individual ASEAN states could be included.

According to a draft of the framework, tariff rates higher than 15 percent will be reduced to 10 percent by 2003, five percent by 2004 and zero percent by 2005.

Tariff rates of between five and 15 percent will be trimmed to five percent next year and zero onwards. Tariffs of five percent or less will have the rates abolished by next year.

The proposed ASEAN-China FTA is part of a series of engagements the 10-nation regional bloc is planning with its more prosperous Northeast Asian neighbors to deepen regional integration, lessen dependence on the U.S. market and maintain its relevance as an investment destination.

During a September meeting in Brunei, the economic ministers of ASEAN and Japan agreed that both parties should start considering a framework for their own closer economic partnership as soon as possible.

The proposed ASEAN-Japan Closer Economic Partnership will include elements of an FTA, a situation that could put the spotlight on Tokyo's sensitive agriculture sector.

South Korea, the only missing part of the East Asian FTA jigsaw puzzle, has said it was studying the feasibility of an FTA with ASEAN.

Tongzon, the economist, lauded the early harvest package, saying this would give ASEAN a headstart before China begins cutting tariffs to the rest of the world under its World Trade Organization (WTO) commitments.

"China is going to implement WTO commitments by 2005. If we can have tariffs eliminated or reduced among ourselves before China can extend it to the rest of the world, we can have an early benefit," he said.