China, ASEAN move to propel regional economy

Hu Xuan, China Daily, Asia News Network/Beijing

China and the Association of Southeast Asian Nations (ASEAN) are taking a tangible step towards creating the world's most populous free trade area (FTA).

They are scheduled to lower tariffs on more than 7,000 industrial goods tomorrow, spearheading the full implementation of the Agreement on Trade in Goods inked in November last year.

This unequivocally testifies to their resolve to boost common development and prosperity through enhanced economic and trade exchanges.

Zhang Yunling, director of the Institute of Asia-Pacific Studies at the Chinese Academy of Social Sciences, told China Daily: "The Sino-ASEAN drive to achieve trade liberalization marks the historic inception of the China-ASEAN FTA, a big free market encompassing 1.7 billion people, an aggregate gross domestic product of almost US$2 trillion and overall trade volume worth $1.2 trillion per year."

Demonstrating cooperation between China and ASEAN, which has been developed from a mere framework to include more substantial content, the move is expected to create an ideal environment for both parties to benefit from economic integration.

Progress in exploratory negotiations over details of the China-ASEAN FTA has been relatively swift.

In November 2002, leaders from both sides signed the landmark China-ASEAN Framework Agreement on Comprehensive Economic Co- operation in Cambodia, agreeing to set up the China-ASEAN FTA within 10 years, a vital step in making concrete the proposal former Chinese Premier Zhu Rongji made in 2000.

A breakthrough in East Asia's regional economic cooperation as well as a milestone in Sino-ASEAN relations, the FTA plan will allow all members to enjoy more favorable trade and investment conditions than the WTO can offer. Liberalized trade means more opportunities to realize economies of scale and improve efficiency.

Zhang explained that to show its intention to boost free trade between the two sides, China has eliminated tariffs on selected agricultural products from Thailand, Malaysia and the Philippines the first batch of ASEAN countries to join the four-year Early Harvest program started in 2003.

The one-way goodwill deal from China, unprecedented in forging an FTA among developing countries, had given ASEAN a head start before China began cutting tariffs to the rest of the world under its WTO commitment this year.

As the first step towards allowing China and ASEAN to enjoy the early benefits of the trade agreement, the program has encouraged fast growth in bilateral agricultural trade and laid solid foundations for the umbrella FTA.

Instead of an over-ambitious deal to free up all trade, the approach of tackling easy-to-implement plans first, as adopted under the Early Harvest program, is more realistic and thus efficient in demonstrating the benefits of free trade.

The Sino-ASEAN tariff cuts on more than 7,000 industrial commodities, the core of the FTA, will be carried out using the same principles.

Xu Ningning, director of the China-ASEAN Business Council, told China Daily: "The liberalization is taking place step by step."

"Tariffs are to be axed by 2010 for the six advanced ASEAN members Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. The four underdeveloped members Laos, Viet Nam, Cambodia and Myanmar will have until 2015 to comply.

"For the richer ASEAN countries, products in the standard track will be cut to 0 and 5 percent by 2010. Duties on products identified as sensitive will not reach this level until 2018; those on highly sensitive products will go no lower than 50 percent."

Lower tariffs will reduce companies' production costs and sharpen their competitiveness.

Xu explained business deals are essential for China and ASEAN members' aspirations to make their relations mutually beneficial. Their shared commitment to economic progress is creating demand for economic cooperation.

Trade between China and ASEAN continued to surge in 2004, jumping 35.3 percent to a high of $106 billion, and hit $60 billion in the first half of this year.

Such dynamics have fueled belief in trade prospects between China and ASEAN, respectively each other's sixth and fourth largest trade partners.

China's robust economic growth and its entry into the WTO make it a huge potential market for ASEAN products.

Li Guanghui, an expert in regional economic cooperation at the Institute of Economics under the Ministry of Commerce, said, "As the tariff cuts come into force, trade between China and ASEAN countries are likely to increase."

Given the economic, social and cultural differences between the two sides, difficulties in transforming the plan from ideas to reality must not be overlooked.

Trade liberalization means much more than tariff cuts and the removal of non-tariff barriers.

Chai Yu, an expert in economics at the Chinese Academy of Social Sciences said: "A full FTA, an essential stage in regional economic integration, covers trade in goods and services as well as investment.

"The two sides might encounter real obstacles when it comes to negotiations covering services and investment."

To meet the challenges of embarking on the road to a full China-ASEAN FTA, concrete and continuous steps must be taken to increase the rate at which existing trade liberalization commitments are implemented.

Looming tariff cuts on industrial goods are a much-needed shot in the arm for the drive to achieve shared regional goals.

Regional integration is expected to enhance mutual trust and help member states play a greater role in world affairs.

The strategic cooperation geared towards peace and prosperity in China and ASEAN nations is in the interests of both sides and is expected to sharpen the competitive edge of the whole region.