ASEAN-China Free Trade Agreement

The ASEAN (Association of Southeast Asian Nations)-China Free Trade Area Agreement covering 1.9 billion persons in this free trade zone will become effective on 1 January, 2010. After 10 years of efforts between ASEAN and China, the smooth sailing of this significant agreement is a challenging test not only to ASEAN countries but also to China. Beginning 1 January, a new round of tariff reduction between China and six key ASEAN member states namely Malaysia, Brunei, Indonesia, the Philippines, Singapore, and Thailand will see more than 90 percent of the products from both parties with tariffs drop to near zero.
In November 2000, then Chinese Prime Minister Zhu Rongji put forth this idea of the formation of an ASEAN-China free trade zone with the purpose to lift the trade barriers between China and ASEAN member nations, so that China's huge market and ASEAN countries' natural resources could reach a mutually beneficial win-win trade relations.
However, within the past few years, the economy of China has increasingly consolidated and become powerful. This is most noticeable during the global financial turmoil when China's economic performance has continued to be outstanding. The strength of China's economy has become a concern to ASEAN member nations in the midst of the establishment of this ASEAN-China Free Trade Area Agreement. Such concern is in particularly reflected in ASEAN member countries that have high volume of trade dealings with China. The enterprises and business firms in five ASEAN member nations namely Malaysia, Singapore, Thailand, Indonesia, and the Philippines are worried that the exemption from customs duties for goods coming from China will challenge their local business survival with an influx of cheaper Chinese goods in the local market.

Advantages and Disadvantages
On contrary, other less economically developed ASEAN countries, including countries that do not even have established stock market mechanism will probably welcome the formation of this ASEAN-China trade agreement. These countries include countries such as Cambodia and Laos. In the case of Laos, under the ASEAN-China Free Trade Area Agreement, China would give Laos zero tariffs or less than five percent tariffs of over 7,000 kinds of goods and products import to China. To Laos, having this ASEAN-China free tree agreement will undoubtedly give the country more advantages than disadvantages.
However, to Indonesia, which is the economic engine head of ASEAN, its business enterprises do not think the implementation of the ASEAN-China Free Trade Area Agreement is a good idea. Erwin, chair of the Indonesian Young Entrepreneurs Association Chairman has earlier called on the Indonesian Government not to make a rush in the implementation of the free trade area with China. He said that Indonesia had not yet prepared for such a free trade agreement with China. He even warned that when the ASEAN-China Free Trade Area Agreement became effective, a number of industrial areas, particularly the small and medium-sized industrial zones and the industries in special economic zones might face the risk of bankruptcy. In view of such concern, the Indonesian Government has now formed a joint committee with the Indonesian Young Entrepreneurs Association and the Indonesian Chamber of Commerce and Industries to gather feedback from business community and entrepreneurs on the impact of the ASEAN-China Free Trade Area Agreement.
As for Malaysia, although the business community and private sector do not have such a strong rebound over the ASEAN-China Free Trade Area Agreement as in Indonesia, nevertheless, some larger enterprises, in particular the automotive industries are concerned about the impact of having a comprehensive free trade agreement with China. This is because the Agreement can have a huge impact level on local automotive industries. If Malaysia were to follow the country's original national automotive policy announced in 2006, Malaysia would fully abolish the permit to import foreign cars by December 2010. But under Malaysia's latest national automotive policy guideline, the abolishment of the AP (Approved license to import foreign car) system has furthered been delayed to 2015.
Although the ASEAN-China Free Trade Area Agreement will become effective on 1 January, all indications have shown that to most ASEAN member countries, this new free trade agreement with China comes with mixed felling of happiness and worry. We can even say ASEAN member nations are more worried about the impact of this Agreement than happy about the new trade opportunities available. When market force of China's 1.3 billion populations and ASEAN's total 600 million population combine and compete in the same market, it is quite natural for varied businesses and enterprises in ASEAN countries to worry about the impact of it. The ASEAN business community and enterprises are concerned whether an ASEAN-China Free Trade Area Agreement concept that was mooted ten years ago could still hold the original goal in allowing mutual and win-win trade between ASEAN and China to reap fruitful result ten years later. This is because over the past ten years, the China's economy today has growth much stronger now than ten years ago. There is a concern on the part of some ASEAN countries that the implementation of the free trade agreement with China now will eventually lead to trade imbalance between ASEAN and China. Some ASEAN member nations are afraid that there will be increased trade in favor of China rather than in favor of ASEAN member countries. This is because China is a huge country with not only huge market for domestic consumption but also a strong ability to export and supplies cheaper goods to the ASEAN region.

Importance of Agreement
Even so, we have to accept the fact that the engine head of this ASEAN-China Free Trade Area Agreement has already started running. We cannot pull the button and stop its advancement. This ASEAN-China Free Trade Area Agreement is not only China's first free trade area agreement in foreign trade; it is also the first free trade zone agreement ASEAN negotiated with a foreign nation. As such, the importance of this ASEAN-China Free Trade Area Agreement cannot be undermined. The importance of ASEAN's trade agreement with China will become particularly significance when under this free trade agreement ASEAN nations begin to use China's renminbi (yuan) as the major trading currency when engaging trade with China. Such development can greatly enhance the possibility that China's renminbi or yuan will eventually become a major global trading currency in addition to the US dollars.
Overall, we can only say that the birth of ASEAN-China Free Trade Area Agreement is a necessity product in the current regional economic environment. However, whether this Agreement can be achieved and reaped the expected result will, to a great degree, depend on how ASEAN member countries can maintain a united stance on the vast and varied goods and products entered into the Agreement with China as near zero tariffs products. If ASEAN member countries cannot stand united as one and begin to have different version of free trade area with China, then as a whole, it is impossible for ASEAN to reap trade benefits from the huge Chinese market.