ASEAN-China FTA Prof. Philip Yang National Taiwan University 2019/1/13

Background Upon entering the 21st century, China made some diplomatic-strategy re-adjustments and started to push for better relations with its neighboring countries, seeking mutual trust politically and co-prosperity economically. As part of the effort, the process of bringing about a China-ASEAN (Association of Southeast Asian Nations) Free Trade Area (FTA) is being driven ahead. 2019/1/13

ASEAN-China FTA In 2000, in the ASEAN + 3 summit, Chinese Premier Zhu Rongji tabled a proposal to set up an ASEAN-China free trade agreement. In November 2002, the Chinese and ASEAN leaders signed the Framework Agreement on Comprehensive Economic Co-operation between China and ASEAN and decided that a China-ASEAN FTA would be set up in 10 year (completed by 2010 ). 2019/1/13

Two Phases The FTA has been targeted to come into force in 2010 for the six original ASEAN members and in 2015 for the other four. The ASEAN-China FTA is the world’s biggest free trade area embracing 1.7 billion consumers, a combined gross domestic product (GDP) of approximately 2 trillion US dollars, and total international trade of 1.23 trillion US dollars. 2019/1/13

While there is concern in ASEAN about the competition from China for investment and export markets, there is also a growing recognition that such a free trade area could bring significant economic benefits. The most obvious economic benefits out of the ASEAN-China FTA include increased bilateral trade, expanded GDP, greater economic efficiency, lower costs, and increased investment which may lead to the better research and development and then technological innovation. 2019/1/13

Currently, ASEAN accounts for only 8 Currently, ASEAN accounts for only 8.3 percent of China's export, while China accounts for a mere 3.9 percent of ASEAN's. The agreement could boost ASEAN's exports to China by 48% and China's exports to ASEAN by 55%. By 2010, average duty within the ASEAN-China FTA, if realized, will vary between zero and 5 per cent, and internal trade and investment barriers will be eliminated. 2019/1/13

Developments Starting on January 1, 2004, the two parties began implementing an Early Harvest Plan (EHP), cutting tariffs on more than 500 products, as part of the effort to facilitate the birth of the FTA. At the Eighth China-ASEAN Summit convened on November 29, 2004 in Vientiane, capital of Laos, the two parties signed a package of agreements on trade in goods and dispute settlement, laying down foundations for standardizing tariff cutting and resolving disputes. 2019/1/13

Starting from July 20, 2005, China and ASEAN began to cut tariffs on more than 7,000 products, which marked the coming of the phase of substantial tariff reduction between China and ASEAN. In December 2006, China and the 10 ASEAN countries signed an Agreement on Trade in Services of the Framework Agreement on Comprehensive Economic Co-operation. 2019/1/13

Changes in Intermediate Asset Product Trade between Taiwan and Major East Asian Countries 2019/1/13

Economic Impacts While there is concern in ASEAN about the competition from China for investment and export markets, there is also a growing recognition that such a free trade area could bring significant economic benefits. The agreement could boost ASEAN's exports to China by 48% and China's exports to ASEAN by 55%. 2019/1/13

By 2010, average duty within the ASEAN-China FTA, if realized, will vary between zero and 5 per cent, and internal trade and investment barriers will be eliminated. The free trade area will possess 40 per cent of the world's foreign exchange reserves and more than US$2 trillion in gross domestic product, 10 per cent of the world's total. 2019/1/13

Political & Strategic Implications China, eager to ease its neighbors' worries on the country's rising power, is eyeing ASEAN countries for both their markets and supplies of raw materials, especially oil. Chinese and ASEAN exports are more complementary than perceived and not all are in direct competition. If you cannot beat China, then you need to work with China and grow with it. 2019/1/13

This trade partnership will also make the countries involved less dependent on other markets, such as Japan, Europe and the United States. ? 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. 2019/1/13

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 If ASEAN does not opt for this FTA, it will lag further behind and will soon find itself being marginalized. 2019/1/13

Prospects China-ASEAN FTA will be the largest FTA in Asia, the most populous FTA in the world and the biggest FTA in the developing world. The China-ASEAN FTA is expected to accelerate the trend of regional integration in Asia and, in turn, will have impacts on the world economy. 2019/1/13

Discussion Question Do you agree that harsh adjustment measures imposed by the West (especially after the 1997 economic crisis) have driven regional countries into China's embrace? What other factors does China have in its favor when cultivating regional cooperation? Is there a danger that regional countries will replace dependence on the West with dependence on China? 2019/1/13