ASEAN-China Free Trade Area Offers Great Trade, Investment Opportunities

The Agreement on Trade in Goods, inked by China and the 10-member Association of Southeast Asian Nations (ASEAN) in November 2004, takes effect from July 1, 2005. The agreement, along with two others on trade in services and investment expected to be signed some time this year, are three foundations for the establishment of the ASEAN-China Free Trade Area in 2010 as the leaders of both sides pledged in 2002.

Under the Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Cooperation between the ASEAN and China inked in 2002, preferential tariff rates are granted on products imported from the 10-member block into China and on exports from China to the block. Specifically, ASEAN and China are to lower, from July, import tariffs on over 7,000 categories of industrial commodities.

In a broader move, duties on most normal goods between China and six ASEAN members, namely Thailand, Singapore, Brunei, Indonesia, Malaysia and the Philippines, will be removed by 2010, those between China and four newer members of the block - Vietnam, Laos, Cambodia and Myanmar - will be reduced to zero per cent by 2015. Tariffs on some sensitive goods will also be lowered gradually. In recent years, the ASEAN members have mainly shipped oil, lubricants, electrical equipment, machinery, organic chemicals, plastic ware, vegetables and fruits to China. Among the items, many have been exported to a third country.

"Due to preferential treatment of the ASEAN-China Free Trade Area with a population of 1.7 billion and the gross domestic product (GDP) of over US$2.5 trillion, trade between the two sides, especially that in such fields as petrochemicals, machinery, electronic goods, telecommunications equipment and farm produce, will be enhanced," Phan The Rue, Vietnamese Deputy Trade Minister, said, noting that the area will have great impact on economic cooperation ties between Vietnam and China, whose trade surged roughly 47.7 per cent to nearly US$7.2 billion in 2004.

To take advantage of the preferential treatment, enterprises in the ASEAN member states, especially newer ones, should rapidly identify and quantify potential tariff savings opportunities, said foreign and local trade experts. Specifically, the enterprises should probe into the agreement on trade in goods, especially the modality for tariff reduction and elimination for tariff lines placed in the normal track and the sensitive track, the list of products scheduled for tariff elimination, the rules of origin, and operational certification procedures for the rules of origin of the ASEAN-China Free Trade Area.

Besides trade, the area will facilitate investment within and outside the ASEAN and China. More companies from the 10-member block, China, the United States, the European Union and Japan will be willing to pour capital into the integrated market as market uncertainty and risk are lowered.

"The ASEAN and China are luring big investment both within and outside the two entities. In 2004, direct investment in the two entities stood at more than US$84 billion, of which over US$60 billion was poured into China," Rue said, noting that the ASEAN members, which have so far received approximately US$2 billion worth of investment from China, have poured roughly US$40 billion into the country.

Now, the ASEAN and China are negotiating the construction of agreements on investment and trade in services, although many ASEAN members seem reluctant to quickly open their domestic service markets to foreign rivals, said the experts. However, the Vietnamese deputy trade minister is optimistic about the current negotiation process. "The ASEAN and China can sign agreements on trade in services and investment rights this year," he said./.

Modality for Tariff Reduction and Elimination for Tariff Lines Placed in the Normal Track Applied to Vietnam

                                                              * The first date of implementation shall be 1 July 2005.