China-Asean FTA: Why the anxiety now?

Rodolfo C. Severino

AS 2009 turned into 2010, the mass media got all excited about the 'entry into force' of the China-Asean Free Trade Area (Cafta). This mini-frenzy was fed by Indonesians sounding the alarm about a flood of cheap Chinese goods overpowering the products of uncompetitive Indonesian industries.

So what exactly happened on Jan 1 this year, with respect to South-east Asia's trade with China? Nothing. At least, nothing of substance, nothing in terms of a significant development that would warrant undue anxiety or a media frenzy. After all, Cafta has been on the horizon for a long time.

In November 2000, more than nine years ago, then Chinese Premier Zhu Rongji proposed at the Asean-China summit in Singapore that the two sides 'explore the establishment of a free trade relationship between them'. As Mr Zhu proposed, an Asean-China Expert Group was formed to 'study' the matter. Not surprisingly, the study supported the Chinese proposal. At their next summit, in November 2001 in Bandar Seri Begawan, Asean and Chinese leaders, having 'considered' the study, 'endorsed the proposal for a Framework on Economic Cooperation and to establish an Asean-China Free Trade Area within 10 years'.

The next year, in November 2002 in Phnom Penh, the leaders signed a Framework Agreement on Comprehensive Economic Cooperation, to enter into force on July 1, 2003, calling for negotiations on the reduction or elimination of tariffs on goods traded between Asean and China except for so-called 'sensitive' products. The negotiations between China and the six older Asean members - Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand - were to take place from 2005 to this year, and those between China and the Asean-4 - Cambodia, Laos, Myanmar and Vietnam - from 2005 to 2015.

There was to be an 'early harvest' programme covering certain agricultural products. In addition to the agreement on trade in goods, the parties would negotiate agreements on services and investments. They also agreed to cooperate in a number of 'priority' sectors.

In November 2004, more than five years ago, Asean's economic ministers and China's commerce minister signed the trade-in-goods component of the Comprehensive Economic Cooperation agreement, which adopted rules of origin and called for the elimination of tariffs on goods traded between China and the Asean-6 by the beginning of this year and, in certain cases, by 2012.

Thus, the private sectors of Asean countries have had enough time and ample opportunity to express their views to their governments, if not adjust to the coming competition from Chinese goods.

It must be noted in this regard that the trade-in-goods agreement called for the reduction of tariffs on goods traded between China and the Asean-6 to 5 per cent by last year. Technically, therefore, what was supposed to happen on Jan 1 this year in the case of the Asean-6 was a drop in tariffs on Chinese imports from

5 per cent to zero. Big deal.

In the case of Indonesia, it has by far the largest number of tariff lines (263, to be precise) on which the elimination of tariffs on Chinese imports was to be pushed to 2012. No wonder Indonesian Trade Minister Mari Elka Pangestu had stated that Indonesia has enough tools to counter unfair competition from China, such as anti-dumping measures, and that Jakarta had no intention of seeking a re-negotiation of the trade-in-goods agreement with China.

The sudden howls this year by some in the Asean private sector about Cafta indicate any of three things: incompetence; a dysfunction in the consultation process between government negotiators and trade and industry leaders; and political or other extra-business motives.

The writer, a former Asean secretary-general, is head of the Asean Studies Centre at the Institute of Southeast Asian Studies.