Source: Inter Press Service via Asia Times
BANGKOK - China and, initially, six of its Asian neighbors enacted the world's largest free trade area at the start of the year. Billed as a welcome boost for the economies of its Asian partners, some analysts also see it as a panacea for the region as they battle through the global financial crisis.
Such optimism stems from the free-trade pact cementing a relationship that has seen the value of trade between the world's fastest-growing major economy and the 10-nation Association of Southeast Asian Nations (ASEAN) jump six-fold since 2000 to US$193 billion.
The China-ASEAN Free Trade Area (CAFTA), which took effect on January 1, dwarfs other free trade areas by the number of people it caters to - 1.9 billion, or a quarter of the world's population. China's economy, now battling neck-and-neck with Japan to be the world's second-largest, after the US, surged 10.7% in the fourth quarter of 2009, the fastest pace since 2007, bringing the full-year growth rate in gross domestic product to 8.7%, the government said yesterday.
"The CAFTA is an important vehicle for trade-led growth and recovery in ASEAN,'' said Ganeshan Wignaraja, principal economist at the Office of Regional Economic Integration at the Asian Development Bank. "We expect trade-led recovery to grow from 3.9% in 2009 to 6.4% in 2010."
The Southeast Asian nations that will initially profit from deeper trade ties with China's powerhouse economy are Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Remaining members of the Association of Southeast Asian Nations (ASEAN) China - Myanmar, Cambodia, Laos and Vietnam - will be included in the arrangement from 2015.
The launch of a $10 billion infrastructure investment fund by China to improve roads, railways and airlines and strengthen telecommunication links may help speed recovery for its Asian neighbors. The world's most populous nation has also committed a $15 billion credit facility to promote regional integration.
"It will be good [for the ASEAN countries] to latch on to China's production network, to get into that value chain, and also sell to Chinese consumers," Wignaraja said from the ADB's Manila headquarters. "We think by 2017 the ASEAN region will gain $82 billion dollars at least, and this is a conservative estimate, from a zero scenario."
Even so, ASEAN countries will have to "adjust their thinking, offering a competitive advantage for companies to invest in this new climate," said Gyorgy Szirackzi, a senior economist at the International Labour Organization's Asia-Pacific office in Bangkok. "Some sectors in ASEAN will benefit early on, like the health service sector, tourism sector and the telemarketing sector."
But he cautioned that CAFTA would have birth pains, including loss of jobs in countries that cannot compete against the labor costs of their new trade partners.
"Some countries will gain, some will lose," Szirackzi said. "Companies will consider how to increase their scale of production and may choose to operate from the country that makes economic sense for them."
Indonesia has already sounded such an alarm. The archipelago's trade minister, Mari Pangestu, wrote to the ASEAN secretariat this month stating that Jakarta wanted to "renegotiate" some features of CAFTA, noting that local industries like textiles and food were suffering from a flood of cheaper Chinese imports.
Filipino legislator and economist Walden Bello offered a more trenchant criticism. "The picture is more complex than that of a Chinese locomotive pulling the rest of East Asia along with it on the fast track to economic nirvana," he wrote in last Sunday's online edition of Business Mirror, a Manila-based newspaper.
"The reality, however, is that most of the advantages will probably flow to China," added Bello, who is also a senior analyst at Focus on the Global South, a Bangkok-based regional think tank.
The CAFTA has slashed tariffs on 90% of traded goods. These include final products from chilli, fish and soy sauces to manufactured products such as air conditioners, motorcycle parts and machinery. By 2015, goods described as "highly sensitive," such as rice, cars and petrochemical products, will be subject to a 50% import duty reduction.
China has been making deep inroads into ASEAN economies. According to the Jakarta-based ASEAN Secretariat, trade between the organization's member countries and China grew at a rate of 20% annually between 2003 and 2008. Nearly a third of ASEAN exports to China consist of electrical and electronic products. China has replaced the US as ASEAN's third-largest trading partner, next only to Japan and the European Union.
Against this picture of stronger China-ASEAN trade ties was the sobering reminder of how they collectively felt the impact of the global financial crisis, which saw export markets in the United States and the EU contract. China's exports dropped by 26% in early 2009 in contrast to the previous year, according to the World Bank, while Indonesia saw a 32% contraction, Malaysia 34% and the Philippines 41% during the same period.
Yet to enjoy the benefits of CAFTA, ASEAN countries have to address concerns over "trade facilitation," said Ravi Ratnayake, director of the trade and investment division at the Economic and Social Commission for Asia and the Pacific (ESCAP), a Bangkok-based United Nations regional body. "The region needs to simplify its trade procedures and documentation needed for exports."
There is a "lot of red tape" that exporters encounter at customs or with ministries of finance and some of them are "exhaustive", he said. "Even if you reduce tariffs to zero, the trade is not going to see a boost unless you remove all the red tape."
In some ASEAN countries, delays caused by bureaucratic procedures for exports last from 22 to 29 days, an ESCAP study reveals. "The average number of documents and time required for import/export in many [Asian] subregions remain well above the (developed country) average."
(Inter Press Service)