Free trade with ASEAN, China's safety cushion

Free trade with ASEAN, China's safety cushion

Sheng Lijun, The Straits Times, Asia News Network, Singapore

China's commitment to create a free-trade area (FTA) with
ASEAN countries has attracted much interest among scholars and
businessmen. Leaving aside the economic rationale, how is one to
read the strategic motivations behind the move?

It was China which first proposed the FTA. The Chinese concept
can be traced to 1995, when Thailand proposed a special economic
zone between itself and China's southern provinces.

The 1997 Asian financial crisis further spurred discussions
among Chinese scholars on a regional FTA. From 1999, the
discussions moved to the policy-making level, pushed partly by
China's quest for ASEAN support in the aftermath of America's
bombing of its embassy in Belgrade.

Chinese leaders decided in 2000 to "strengthen cooperation"
with ASEAN, and this led to Chinese Premier Zhu Rongji's FTA
proposal. Several international trends and events have helped to
shape the ASEAN-China FTA. First, the accelerating globalization
process since the 1990s has promoted the concept of regionalism.

Second, the 1997 Asian financial crisis forced some East Asian
countries to question the wisdom of relying too heavily on the
West.

Third, China's entry into the World Trade Organization (WTO)
last year -- to soothe ASEAN's worries of Chinese competition,
Beijing offered the FTA with early concessions for the less
developed ASEAN countries.

Fourth, the Sept. 11 terrorist attacks in the United States
resulted in pessimistic forecasts for the American economy.

There was also much anxiety about the performance of the
Japanese economy. To encourage ASEAN states to put its eggs into
more baskets, the booming Chinese market was held up as an
alternative choice.

Fifth, the shift of attention on U.S. security from Europe to
East Asia put more pressure on China to seek a more friendly
neighborhood in Southeast Asia.

While forging an ASEAN-China FTA, China also strengthened
economic cooperation with Japan and Korea at the same time.

China also established the Shanghai Cooperation Organization
(SCO) with its neighbors in the north-west regions.

It also intends to improve relations with India and build a
regional economic cooperation mechanism in the south-western part
of its border.

In all this, China is constructing a safety cushion around
itself as a security measure, and is in a pivotal position to do
it.

For China, the process of working for an FTA with its
Southeast Asian neighbors is just as important as the outcome
itself. The fact that 10 ASEAN countries can sit down with China
to talk about an FTA is very important.

This is the first time in Chinese history that it has found
common interest to engage all the Southeast Asian countries
constructively to talk about cooperation, instead of quarreling
on issues such as the rival claims in the Spratlys.

This can thus be another form of "political confidence-
building" for both sides. The FTA talks, expected to take 10
years, mean that China has succeeded in getting the ASEAN
countries to negotiate for a new economic framework.

ASEAN countries will find it in their interest to engage China
constructively and ride on the booming Chinese economy, while
they make changes to meet the economic competition from China.

China's behavior in Southeast Asia will likely be more
amicable, and it will offer more economic concessions to ASEAN.

Of course, China's offers will be based on pragmatic
considerations. ASEAN's share in China's foreign trade is only
about 8 per cent.

Even if Beijing makes more concessions to ASEAN, the economic
and political impact for China will not be as great as it would
be with its major trading partners, such as Japan. The experience
of negotiating an FTA with ASEAN will provide valuable experience
for China.

For ASEAN, the FTA will enable member states to address the
challenges posed by globalization. There is a growing realization
that if ASEAN and East Asian countries do not step up trade and
economic cooperation, they may be marginalized.

The FTA may also help ASEAN to remain as a region of economic
importance. Otherwise, more foreign companies will move to China.

Engaging China in a constructive manner will also improve
ASEAN's bargaining position vis-a-vis Japan, the US and other
countries.

In the light of perceptions that ASEAN is losing its
cohesiveness and relevance, China's offer of the FTA will enable
Southeast Asian countries to demonstrate that they are still
players in the international trading system.

And ASEAN may find niche markets in a booming China.

The proposed FTA is likely to have an impact on ASEAN-China
relations. No wonder that Japan is now prompted to forge closer
economic cooperation with ASEAN.

The writer is a senior fellow at the Institute of Southeast
Asian Studies.