Posted by: mel | January 1, 2010

China-ASEAN link in world’s largest free trade deal

Sydney Morning Herald | 1 January 2010

But some South-East Asian countries fear jobs will be lost, writes Stephen Coates.

China and South-East Asia establish the world’s biggest free trade area today, liberalising billions of dollars in goods and investments covering a market of 1.7 billion people.

Eight years in the making, the agreement between China and the Association of South-East Asian Nations will rival the European Union and the North American Free Trade Area in terms of value and surpass them in population.

Officials hope it will expand Asia’s trade reach while boosting intra-regional trade that has already been expanding at 20 per cent a year.

”In 2010 we are sending a strong signal that ASEAN is open,” Sundram Pushpanathan, the ASEAN deputy secretary-general, said.

China has just overtaken the US to become ASEAN’s third-largest

trading partner. Mr Pushpanathan said it would overtake Japan and the EU to become No.1 within the first few years of the FTA.

Under the agreement, China and six of the first ASEAN countries – Brunei, Indonesia, Malaysia, the Philippines, Thailand and Singapore – are to eliminate barriers to investment and tariffs on 90 per cent of products.

Later ASEAN members, including Vietnam and Cambodia, have until 2015 to follow suit.

Zhang Kening, director-general of China’s department of international trade and economic affairs, said the average tariff China charged on ASEAN goods would be cut to 0.1 per cent from 9.8 per cent.

Average tariffs imposed on Chinese goods by ASEAN states will fall to 0.6 from 12.8 per cent.

ASEAN-China trade has exploded from $US39.5 billion in 2000 to

$US192.5 billion in 2008.

At the same time, ASEAN-China trade with the rest of the world has reached $US4.3 trillion, or about 13.3 per cent of global trade.

Teng Theng Dar, chief executive of the Singapore Business Federation, said sectors likely to reap the most benefits from the free trade area included services, construction and infrastructure, and manufacturing.

”Other than product and service innovations, this is one great new business opportunity for the establishment of a regionally based innovative supply chain for market reach and growth,” he said.

Officials said there was more to the deal than sating China’s thirst for Asian raw materials such as palm oil, timber and rubber, and opening up regional markets for its manufactured products, steel and textiles.

”China and the ASEAN countries are all export-oriented economies. A large proportion of our products target the US and EU markets … Generally neither side took the other’s market as its most important target market,” Mr Zhang said. ”But with the establishment of the China-ASEAN free trade zone, we think there is potential to improve this situation … Both sides have many goods that complement each other’s needs.”

Not everyone is happily singing the free trade anthem, however.

At the 11th hour, industry groups in Indonesia, South-East Asia’s biggest economy, and the Philippines are pressing their governments to keep tariffs on vulnerable sectors until 2012.

”These sectors aren’t ready to compete with imported Chinese products. If the government implements free trade now, these industries are surely going to die,” said an Indonesian MP, Airlangga Hartarto. He cited sectors including textiles, petrochemicals, footwear, electronics, steel, auto parts, food, engineering services and furniture.

”For example, a local sack for sugar, rice and fertiliser costs about 1600 rupiah. A Chinese sack costs about 800 rupiah,” he said.

The chairman of the Indonesian Footwear Association, Eddy Widjanarko, said Chinese firms would take their share of the Indonesian market to 60 per cent from 40 per cent, costing 40,000 local jobs.

Mr Pushpanathan conceded some businesses would struggle.

”In the short term there will be some adjustments that some countries have to make. Some local companies will lose their domestic market share but ultimately consumers will benefit,” he said.

Agence France-Presse

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