China Asean Free Trade Agreement

02Jan10

The China Asean Free Trade Agreement ( FTA ) commences as from Jan 1 2010 . The FTA establishes the world’s biggest free trade area , 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.

According to the Age newspaper “ 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.

Malaysia position :
China is Malaysia’s fourth largest trading partner, after Singapore, the US and Japan. Trade in 2008 amounted to RM130 billion, or 11 per cent of Malaysia’s global trade.

Malaysia’s exports to China in 2008 were valued at RM63 billion, accounting for almost one-tenth of the former’s global exports.

According to P. Ravindran, senior director of the Asean economic cooperation division in Miti, no sectors in the country had expressed any such concern so far.

The iron and steel sector had voiced their fears earlier, given that China is a major producer and exports about 70 million tonnes a year.

Miti has embarked on several promotional programmes to tap the China market potential.

Besides trade in goods, Asean and China are also liberalising services. Several sectors have opened up for greater Chinese equity ownership, including architecture, engineering, telecommunications, financial services, education, health and tourism.

Fear of competition from China

Whilst Malaysia business is generally happy with the FTA , some business in Indonesia and the Philillipine have expressed reservations on the impact of the FTA on their business .
The Age reported “ 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.”

This fear is real. What should we do now ?

Asean Deputy Secretary General 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.”

The question is how would this FTA impact our business in the short and medium term ? This must have been examined a long time ago and many of us would have chosen not to follow any discussion . As the FTA will be here for the long haul, and is now in our door step, we must do something as a matter of urgency.

As for me , I am hoping that some of the imported Chinese made goods would now be cheaper , if the savings on the tariffs is passed on to us .

But if I am a medium size manufacturer say of Noodle I would be in trouble as China made noodles would now be cheaper .

Even prior to the FTA , Sarawak has already imported pre fabricated cabinet from China for housing and shop renovation –would this product now be cheaper ?



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