Op-Ed Contributors

Trade push in the right direction

By Song Yinghui (China Daily)
Updated: 2010-03-17 07:52

Trade between ASEAN economies and China has flourished since the late 1970s. Now, the China-ASEAN Free Trade Area (CAFTA), which became operational from Jan 1, is bound to make trade and investment a greater mutually beneficial experience between China and the 10 member states of the Association of Southeast Asian Nations (ASEAN).

CAFTA's aim is to enhance economic cooperation between China and ASEAN to facilitate the region's collective development and raise its people's living standards. Here's an example how that can be achieved.

The average tariff on ASEAN goods imported by China is only 0.1 percent, while that on other WTO members, except countries such as Peru that have signed free trade agreements with China, is at 9.8 percent. This means ASEAN goods have more competitive power in China.

Besides, under CAFTA's Early Harvest program, China will import agricultural products from ASEAN economies on very lenient terms, a move that will benefit their farmers.

On the other hand, six of the ASEAN member states - Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand - will drop the average tariff on goods imported from China to 0.6 percent. The other four members - Cambodia, Laos, Myanmar and Vietnam - will do so in 2015. This will make Chinese goods cheaper in those countries and help their consumers save on expenses.

There are 766 daily flights between major cities in China and ASEAN member states. This number is bound to increase, especially after the agreement on investment under CAFTA is implemented, and make travel and transport of goods more convenient. Hence, apart from trade, CAFTA will also increase people-to-people interaction between China and the ASEAN member states.

If people in China are already savoring durians, mangosteens, and pitayas (or dragon fruits) imported from the ASEAN member states, their counterparts in the 10 have developed a taste for Chinese apples, oranges and peaches. This was a dream even a couple of decades ago, and CAFTA will make more such dreams come true.

Bilateral trade between China and ASEAN trebled in six years, from $78.2 billion in 2003 to $231.1 billion in 2008 - an average annual growth of 24.2 percent. During the same period, ASEAN's investments in China rose from $2.93 billion to $5.46 billion, whereas Chinese investment in ASEAN member states swelled from $230 million to $2.18 billion. CAFTA has the potential to take bilateral trade and investment to even greater heights.

China and the ASEAN member states kept their markets open for each other even during the worst phase of the global financial crisis. This mitigated the negative impact of the crisis on their economies. Two years ago, China reduced the tariff on ASEAN goods worth 3.6 billion yuan, boosting their competitiveness. CAFTA is now set to make more such mutually beneficial arrangements possible.

CAFTA does not only mean enhanced trade relations. It also means cooperation and collaboration in infrastructure building, and investment of capital and talents, too.

China regards its cooperation with ASEAN as a priority and CAFTA is an important component of regional cooperation in East Asia. That's why the free trade area is just a start of all-around bilateral cooperation, which includes the construction of a regional foreign exchange reserve and interaction in non-traditional security fields, including energy security, environmental protection and disaster relief.

But CAFTA, like any other regional or global arrangement, has its share of hiccups. Indonesia wants to renegotiate some of the trade terms with China because a few of its businesspeople doubt the high quality of its cheap made-in-China goods.

Though some foreign media outlets have tried to play up the issue saying CAFTA is good only for China, they are wrong for two reasons. First, a long time has passed between negotiations on and opening of CAFTA. Negotiations began nearly eight years ago and the Early Harvest program was tried out two years later. A lot has changed in the meantime. Very few people expected China to weather the global financial storm with such alacrity and become an important global player so soon. So it's obvious that some CAFTA clauses may be renegotiated.

Second, the increasing trade volume between China and Indonesia shows the latter's fears are unfounded. According to the Indonesian Central Bureau of Statistics, China was the second largest destination for Indonesian (non-oil) goods in January, and the proportion of its (non-oil) exports to China rose from 6.1 percent in 2004 to 9.1 percent last year. Chinese products, too, have consolidated their position in the Indonesian market during this period, raising their share from 7.9 percent to 19.77 percent.

Besides, less developed countries are always likely to gain from free trade areas. This is not hearsay but the words of 2007 Economics Nobel Prize winner Eric Maskin. His comments are based on the experience of NAFTA (North American Free Trade Area). And though there are differences between NAFTA and CAFTA, Maskin is still optimistic about the region's bright future. So am I.

The author is a research scholar with the Institute of South & Southeast Asian Studies, China Institutes of Contemporary International Relations.