China's WTO shadow hangs over AFTA

By Peter Janssen

CHIANG MAI, Thailand (DPA): The 32nd economic ministers meeting of the Association of Southeast Asian Nations (ASEAN) wound up over the weekend with eyes focused on China, whose pending entry into the World Trade Organization (WTO) looms ominously over Southeast Asia's smaller economies.

At Saturday's ASEAN Economic Ministers (AEM) talks with their main Asian trade partners -- China, Japan and South Korea -- the Chinese foreign trade minister was conspicuously absent, due to schedule conflicts, and represented by vice minister Zhou Keren, instead.

Zhou kept mum when pressed on what his minister's absence implied for ASEAN-Chinese relations and follow-up questions on the economic consequences of China's pending entry into the WTO on the region.

The AEM+3 meeting, however, did launch a study on China's WTO impact on Southeast Asia, the results of which will be revealed at the upcoming ASEAN summit in Singapore next November.

Non-ASEAN participants at this year's AEM, which was held in Thailand's northern city of Chiang Mai on Oct. 5-7, stressed that China's looming WTO accession should be viewed as an impetus for pushing through economic reforms and getting a comprehensive ASEAN Free Trade Area (AFTA) in place fast.

ASEAN, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, and Thailand, is only beginning to recover from its worst economic crisis in decades.

The crisis has already taken the bloom off ASEAN as an international darling for foreign investments.

The same crisis has forced South Korea to liberalize its market to greater foreign partication than previously allowed, while China and India are both opening up access to their two billion consumers, compared to ASEAN's collective 500 million population.

Foreign investment inflows to the ASEAN amounted to US$16.9 billion last year, a drop from $19.6 billion recorded in 1998.

The U.S.-ASEAN Business Council, which also met in Chiang Mai, warned that ASEAN would need to continue to push through reforms and integrate its markets if it hopes to attract more investment flows from multinational companies.

"As other large, developing markets open up their economies, deregulate and liberalize, the competition for this capital can only be expected to increase," said Ken Richardson, Executive Director of the U.S.-ASEAN Business Council.

Richardson noted that foreign direct investment in China last year reached $40 billion, the lion's share of the Asian total.

"This is a sharp turnaround from the beginning of the 1990s, when ASEAN was the recipient of 61 percent of the investment flowing into Asia, with only 18 percent directed to China," said Richardson, who warned that Southeast Asian governments needed to accelerate rather than backtrack on AFTA to bring investments back to the region.

It may still be too early to judge whether developments at the AEM in Chiang Mai amounted to backtracking or not.

The meeting agreed to set up a protocol for dealing with member countries's difficulties in slashing tariffs under the AFTA scheme, which seeks to turn the six most developed member economies into a free trade area for one another's exports by the year 2002.

The need for the problem-solving mechanism arose over Malaysia's reluctance to include its automobile sector in AFTA, thwarting Thailand's exports of vehicles and auto parts to its neighbor. Under the protocol Thailand can now seek compensation from Malaysia.

Western observers are reserving judgment on the protocol until they see how it works in the Thai-Malaysian case.

"Any sort of backward move could break the credibility of the whole thing," said a European Union official. "If the result of the Malaysian case is that they pay compensation, then fine, but if the result is that Malaysians can buy time by making others retreat, that's not fine."

The ASEAN ministers also balked last week at a proposal that they consider extending the free trade area to include Oceanea.

In one of the most straightforward comments made at the meeting, Indonesian Minister of Industry and Trade Luhut Pandjaitan, said, "We are not ready, on the Indonesian side, to let, ASEAN and (Australia/New Zealand) become a free trade area. We are very busy still with the AFTA program."

While Pandjaitan's admission reflects a regional reality, another reality is that ASEAN does not have much more time to get its free trade act together.

Thai Commerce Minister Supachai Panichpakdi, who will be WTO chief within two years, acknowledged, "I think we should admit the fact that China's participation through the WTO would mean more intensive competition in the labor intensive products and electronics products in particular."

Those, in fact, are the export sectors ASEAN still does best in.

Rodolfo Severino, ASEAN Secretary-General, noted that the China card does at least add some fire to the region's often plodding trade talks, "It's put the light under our seats. It's good in a way, as it will require faster progress in a lot of these things."