ASEAN eyes free trade zone with China

ASEAN eyes free trade zone with China

Chris Foley, Agence France-Presse, Bandar Seri Begawan

Southeast Asian leaders pushed back their economic frontier on Tuesday, confirming plans for the world's largest free trade zone with China and beginning work on a broader bloc taking in Japan and South Korea.

Approval for the landmark deal with China was reached as the leaders of the Association of Southeast Asian Nations (ASEAN) held separate talks with their key dialog partners China, Japan and South Korea on closer integration.

"For the countries of Southeast Asia this agreement is of enormous historic significance," the meeting chairman, Brunei's Sultan Hassanal Bolkiah, said.

The free trade area will cover two billion consumers in a region with a combined gross domestic product of two trillion dollars, and two-way trade of US$1.23 trillion.

"We wish to signal that we are more determined than ever to accelerate the liberalization of trade in East Asia," the sultan said following the ASEAN summit.

"ASEAN cannot simply sit back and wait for our traditional export markets to recover from the current global economic downturn."

But the euphoria came with a warning that the zone was at least 10 years away and would not solve the immediate problems facing a region struggling with the global economic slump.

Indications on the eve of the summit that the Chinese proposal could be scuttled by ASEAN's golden rule of consensus proved unfounded.

"My suggestions were all accepted by them. They agreed that China will become a part of the ASEAN Free Trade Area," Chinese Premier Zhu Rongji said.

"Today Malaysia's prime minister said it very well: 'When our friends are doing well, we will do well. When we are doing well, we don't forget our friends'," Zhu told reporters.

But Malaysian Prime Minister Mahathir Mohamad still harbored reservations.

"The details need to be worked. If we are not careful we may lose out," he said, after earlier warning: "We must make sure the influx (from China) will not cause our industries to shut down."

The trade agreement highlighted a new urgency by ASEAN, often criticized as a sunset body, to engage China as the world's most populous nation stands on the verge of entry to the World Trade Organization.

Analysts questioned whether it would be carried through. It appeared to be a "backs to the wall" strategy by a group with an unimpressive track record, said Singapore-based regional economist Song Seng Wun.

The sultan set the tone for the new look, saying ASEAN must "improve its credibility as a regional organisation and respond decisively to challenges."

With the ASEAN-China trade area approved, an even larger zone taking in the two other dialogue partners Japan and South Korea is now being examined.

But ASEAN Secretary-General Rodolfo Severino warned the group still needed greater economic integration to get out of its second downturn in four years as it prepares to launch its own free trade area in 2003.

"We have to do more to integrate the economy in terms of infrastructure, trade facilitation, investment flows, transportation and so on," he said.

Japanese Prime Minister Junichiro Koizumi pledged help to open up development "corridors" in eastern and western parts of Indochina rather than back a key $2.5 billion dollar railway linking Southeast Asia to southern China.