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Mar. 11 – The China-ASEAN Free Trade Area officially went into effect January 1st this year and has been heralded in China as a “great opportunity” and a “win-win regional co-op,” but a few experiences since the accord’s original signing in 2002 have left Southeast Asian countries a bit skeptical.
The agreement links up 7,000 duty-free goods between China and ASEAN members Brunei, Indonesia, Malaysia, the Philippines, Thailand, and Singapore, with the other group members – Vietnam, Cambodia, Laos, and Myanmar – planning to be included in the deal by 2015.
Southeast Asia currently only accounts for 8 percent of China’s exports, but Beijing sees great opportunity for growth within their neighbors to the south. The free trade block has brought together the region’s approximately 1.9 billion people along with a combined GDP of US$6 trillion and a total trade volume nearing US$4.5 trillion. There is some worry among the ASEAN members, however, that the deal will benefit China at their expense.
Thailand’s agriculture industry, in particular, experienced the deal’s negative side when the two countries agreed on a zero-tariff, “early harvest” deal – within which Thailand would supply tropical produce to China in return for winter fruits and vegetables.
The fallout of the deal was that Thai farmers of garlic, longan, red onions, and other temperate fruits and vegetables were completely wiped out by cheaper Chinese imports. Furthermore, Thai newspapers reported that Chinese officials refused to drop tariffs on Thai imports as promised.
In the Philippine’s largely agricultural province of Benguet, the governor has said that the CAFTA sneaked up on the region’s farmers, and that many fear for their livelihood. The smuggling of Chinese goods has also been a huge concern for the Southeast Asian countries. The Philippine’s shoe industry for example has been hit hard by the smuggling of Chinese shoes, as has the clothing and toy industries in Indonesia.
Chinese economist Hu Angang explained China’s trade strategy as a “half open model,” with “open or free trade on the export side and protectionism on the import side.”
The CAFTA, though, is not altogether as bad as it seems. Despite these occurrences, the deal has enormous potential and will undoubtedly increase competitiveness and efficiency in the region.
The free trade area also creates room for easier cooperation between the two areas as China can import raw materials from ASEAN members such as rubber, tin, cotton, and oil and, in return, export manufactured goods.
Furthermore, to their credit, Chinese officials have at least acknowledged the concerns voiced by their neighbors and reasserted their aim to advance the economies of both parties.
“Such worries are understandable. But the FTA is mutually beneficial. With full consideration of economic development levels and market capacities of both sides, the FTA will advance the regional economic integrity by eliminating barriers of trade and investment,” reassured China’s Vice-Minister of Commerce Yi Xiaozhun at the CAFTA establishment ceremony on January 7.
“Policymakers from both regions have reached consensus that trade pressures would ultimately be transformed into an impetus that drives the economic development of the whole region,” he continued.
