Bridges Weekly Trade News Digest • Volume 8 • Number 41 • 1st December 2004
China And ASEAN Sign FTA Amidst Flurry Of Regional, Bilateral Deals
China’s aggressive drive to expand its commercial ties is spurring regional and bilateral trade negotiations in Asia and Latin America. Although some projections indicate that a pan-Asian free trade agreement could lead to significant economic welfare gains there — mainly at the expense of the US — other studies warn that a world of bilateral trade agreements would leave most developing countries worse off than they are today.
On Monday 29 November, China signed a deal with the Association of Southeast Asian Nations (ASEAN) aimed at creating a free-trade area encompassing nearly 2 billion people by 2015. The agreement signed in the Laotian capital of Vientiane is set to reduce and eliminate tariffs on trade in goods between the parties, and establish a mechanism to adjudicate ASEAN-China trade disputes. Tariff cuts start 1 July 2005, and will aim to axe duties on some 4000 types of goods to between zero and five percent by 2010 for the six most advanced ASEAN members, i.e., Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand. The four poorer member states — Laos, Vietnam, Cambodia, and Myanmar (Burma) — will have until 2015 to comply. Notably, tariffs on several "sensitive goods," including important sectors such as sugar, iron, steel, and cars, will not be subject to the same steep tariff reductions. As part of the tariff reduction agreement, each of the ten ASEAN members formally recognised China as a full market economy, which will make it far harder for them to impose anti-dumping duties against Asia’s rising economic giant.
ASEAN and Chinese officials hailed the accord for the increased trade flows that they expected. Indonesian union groups, however, called it a "disaster," warning that a flood of cheap Chinese goods into Indonesian markets would lead to hundreds of thousands of lost jobs.
Not to be outdone, the prime ministers of Japan and India met with ASEAN leaders the very next day to announce trade deals of their own. Japan announced that it will start tariff-cutting talks with ASEAN in April 2005, with the objective of liberalising trade in goods by 2012. India, for its part, signed a comprehensive agreement with ASEAN called the ”ASEAN-India Partnership for Peace, Progress and Shared Prosperity,” which plans to establish an ASEAN-India free trade area by 2011 for five of the six advanced ASEAN members and by 2016 for the Philippines and the four less advanced member states. However, plans for the early liberalisation of trade in certain goods have been delayed by a disagreement over rules of origin.
East Asia in particular has seen a dizzying proliferation of regional and bilateral trade negotiations in recent years — Mongolia and North Korea are the only countries in the region not currently engaged in trade talks. One of the potential pacts being mooted is a so-called "ASEAN+3" deal that would establish a free trade zone among the ASEAN countries, China, Japan and Korea. Notably, a recent study by the Asia-Pacific Economic Cooperation (APEC) business advisory group concluded that the US — itself a vocal proponent of bilateral and regional trade agreements — stands to be the biggest loser if the ASEAN+3 free trade area is successfully established. The study projects that such a trade deal would cost the US economy about US$4.3 billion, while netting a much larger gain for the Asian economies (see BRIDGES Weekly, 24 November 2004).
China’s charm offensive on trade has reached across the Pacific Ocean. During President Hu Jintao’s November visit to South America, China recently signed a number of deals with Brazil aimed at increasing their already rapidly growing bilateral trade. Brazil has also recognised China’s status as a full market economy, as has Argentina; Chile has even gone a step further, announcing the start of talks towards a free trade agreement with China.
A Brasilia-based trade analyst told Dow Jones that the new Sino-Latin American agreements could mark an important shift in world trade, as emerging market economies substitute imports from rich industrialised nations with cheaper products from other developing countries. "Brazil can export airplanes and import sophisticated manufactured products from Korea and China," he said. However, the World Bank’s new Global Economic Prospects 2005 report inserts a note of caution: it says that South-South preferential agreements can improve prospects for rapid poverty reduction, but only if developing countries integrate them into a strategy for liberalization of trade on three fronts - unilateral, multilateral, and regional.
The texts of the China-ASEAN agreements are available here.
"ASEAN-China free trade a likely disaster, say trade unions," THE JAKARTA POST, 1 December 2004; "Japan, ASEAN eye more alliances," JAPAN TIMES, 1 December 2004; "Asean-India Partnership for Peace, Progress and Shared Prosperity," Press Release, GOVERNMENT OF INDIA, 30 November 2004; "ASEAN inks partnership pact with India, but delays early tariff cuts," KYODO NEWS, 30 November 2004; "Brazil Push To Boost Developing Country Ties Bears Fruit," DOW JONES, 23 November 2004; "Argentina recognizes China’s market economy status," XINHUANET, 18 November 2004; "China, Chile decide to start FTA talks," XINHUA, 19 November 2004; "Bush is pressed on Pacific trade," BLOOMBERG NEWS, 22 November 2004; "Regional Trade Pacts Must Create - Not Divert - Trade to Reduce Poverty: World Bank Report Global Economic Prospects 2005 predicts highest growth in 30 years for developing countries," WORLD BANK RELEASE, 16 November 2004.