TRADE: ASEAN to Profit from Free Trade Pact with China – Experts

By Marwaan Macan-Markar Reprint | | Print |

Marwaan Macan-Markar

BANGKOK, Oct 18 2002 (IPS) - South-east Asian nations have little to fear from a free trade agreement (FTA) they expect to ink with China early next month because of the potential profits to be made from such a deal, say experts.

While some of the initial fears held by South-east Asian countries are valid – like losing out on certain export sectors to the Chinese economic giant – what cannot be ignored are markets where the economies can complement each other, they add.

Also noteworthy is the advantage that the 10-member countries of the Association of South-east Asian Nations (ASEAN) have over China with respect to their services sector. China, according to experts, is woefully lacking in a skilled service sector as it opens up to free trade and embraces capitalism.

”The establishment of the ASEAN-China Free Trade Area will be beneficial to both parties, probably at the expense of those non-member third countries,” says Li Wei, Deputy Director at the Chinese Academy of International Trade and Economic Cooperation. ”ASEAN and China are important trade partners for each other.”

What is more, trade between the two has been growing at a steady pace despite the global economic slowdown, adds Li, who spoke at a two-day seminar held here this week on ASEAN’s future with China.

”This means trade volume between ASEAN and China is likely to exceed 50 billion U.S. dollars for the first time, obviously reflecting the basis and potential for future cooperation,” he said.

”People talk of China as the biggest factory in the world. This is true,” says Edward Chen Kwan-yiu, president of the Hong Kong-based Lingnan University. But Chinese and ASEAN exports ”are more complementary than perceived” and not all are ”in direct competition.”

If you cannot beat China, the university president asked, then ASEAN needs to ”work with (China) and grow with it,” a fact made easier by China wanting to maintain ”amicable relations with ASEAN.”

But the experts who spoke at the seminar that ended Friday drew attention to the challenges that ASEAN countries face in their efforts to forge a new economic relationship with China.

ASEAN would have to be prepared to ”deal with the ‘exposure’ to the influx of cheaper Chinese manufacturers,” says Sarasin Virapol, executive vice-president of Charoen Pokphand Group, one of Thailand’s leading companies with business links in China.

Export sectors in ASEAN that will be affected range from the labour intensive garment industry, and toys and sporting goods manufacturers, to high tech fields such as information technology hardware, computers and electronic items.

”The greatest potential for displacement will be in apparel after the phase out of the restrictive quotas of the multifiber agreement in 2005,” says Nicholas Lardy, a senior fellow at the Brookings Institution, a Washington-based think tank. The FTA that the 10 ASEAN countries will sign at ASEAN’s meeting on Nov. 4 to 5 in Phnom Penh, the Cambodian capital, aims to create a free trade area to supply its combined population of 1.7 billion people.

The creation of this FTA, the world’s largest, will also mean a combined gross domestic product (GDP) of two trillion U.S. dollars and a two-way trade of 1.23 trillion dollars annually.

”The FTA will also increase ASEAN’s GDP by 0.9 percent or by 5.4 billion dollars while China’s real GDP expands by 0.3 percent or by 2.2 billion dollars in absolute terms,” says Li.

This trade partnership will also make the countries involved less dependent on the markets of the developed countries, like Japan, Europe and the United States, he adds.

”Currently, ASEAN accounts for only 8.3 percent of China’s export, while China accounts for a mere 3.9 percent of ASEAN’s. But the three major markets accounted for 52 percent and 50 percent of China and ASEAN’s export, respectively.”

Even regards foreign direct investment (FDI), an area where ASEAN has taken a beating due to China’s rise, the experts struck an optimistic note.

The FTA offers ASEAN ”a unique opportunity to tap the China market particularly with the support of third country FDI,” says Sarasin.

What is more, other experts said the arrangement would result in Chinese FDI heading towards ASEAN rather than flowing to other countries in the future. That will be due to proximity and cultural similarities, says Li.

According to Lardy, China is attracting FDI at a record pace, with the FDI total for this year expected to be over 450 billion dollars, ”making China the site of more foreign direct investment than any other country.”

South-east Asia, by contrast, is expected to draw only 12 billion dollars by the end of this year.

China’s willingness to push ahead with these plans is a significant departure from China’s historical stance towards South-east Asia, says Sheng Lijun, senior fellow at Singapore’s Institute of Southeast Asian Studies.

”This is the first time in the thousand years of Chinese history that China has ever found a point of common interest to engage all the Southeast Asian countries constructively and exclusively,” he adds. ”This can be read as another form of political confidence-building for both.”

Also not lost on some of the speakers was how the FTA with China has enabled ASEAN to regain relevance as a regional grouping after its confidence was shattered by the 1997 financial crisis.

”China’s offer of the FTA that takes ASEAN as one single identity, but not divide it, is exactly what ASEAN needs at this critical moment of its survival crisis,” says Sheng. If ASEAN does not opt for this FTA, it will ”lag further behind and will soon find (itself) being marginalised, and ending up in a great disadvantage.”

TRADE: ASEAN to Profit from Free Trade Pact with China – Experts

By Marwaan Macan-Markar Reprint | | Print |

Marwaan Macan-Markar

BANGKOK, Oct 18 2002 (IPS) - South-east Asian nations have little to fear from a free trade agreement (FTA) they expect to ink with China early next month because of the potential profits to be made from such a deal, say experts.
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