The future after FTA with China

The future after FTA with China

Next week's ASEAN summit may be another watershed in the development of the grouping as it is likely to endorse the proposal for a free trade arrangement (FTA) with China. This is the biggest economic initiative by ASEAN since the formation of the ASEAN Free Trade Area (AFTA) 10 years ago.

The FTA proposal with China comes amid belief that China has been drawing foreign investment away from ASEAN due to its stronger and larger domestic economy, and the expected greater role it will play in the world economy after it joins the World Trade Organization later this year.

But the ASEAN leaders need to exercise some caution before jumping into bed with China on free trade. A lot more homework has to be done to ensure that this is a win-win situation for everybody, not least because much of the foreign direct investment going into China is from Taiwan and Hong Kong. Analysts have noted that foreign direct investment in ASEAN has not been significantly diverted to China when those outflows from Taiwan and Hong Kong are excluded.

This mirage picture has to be made clear, or ASEAN might be pursuing the wrong track strategy. Should the grouping build on its strengths such as its more developed infrastructure and key industries like automobiles and electronics rather than focussing its attention on making the FTA work?

There is also greater validity in forming a FTA not just between China and ASEAN but for all East Asia as proposed by the East Asian Vision Group. This means bringing Japan and Korea into the FTA agreement. Both countries are said not to be ready for an FTA with ASEAN, but this does not mean that they are not suitable partners. East Asia must form pacts as a grouping in wake of the much stronger economic blocs in Europe and the Americas.

ASEAN's larger interests lie with an open trading system on a global scale. It must continue to work for a new global trade round after the WTO meeting. The East Asian free trade model ought to be seen as the next most desirable option.

A rigorous study has to be made on the impact of an FTA agreement with China before the final agreement is signed. Otherwise, ASEAN will find itself caught in much the same way that AFTA has failed to make the region sufficiently attractive -- because ASEAN member countries tend to retreat into their own self interests.

-- The Nation, Bangkok