Free-trade agreement between China, ASEAN grouping comes into force

A free-trade agreement between China and Southeast Asia comes into force Friday, consolidating a six-fold surge in economic activity over the past decade between countries representing a quarter of the world's population.

The agreement expands a limited 2005 trade area between China and the 10-member Association of Southeast Asian Nations (ASEAN), scrapping tariffs on about 90 percent of goods. By 2015, duties must be cut to no more than 50 percent on “highly sensitive” items, including ambulances in Brunei, popcorn in Indonesia, snowboard boots in Thailand and toilet paper in China.

China's economic clout in Southeast Asian countries has risen over the past decade as policy makers slashed tariffs on electronics, automobile parts and computer chips. Japan, India, Europe and the U.S. have followed China in courting ASEAN, home to investments from Intel Corp., the world's largest maker of computer chips, and Toyota Motor Corp., the biggest carmaker.

“This FTA is going to make a difference at the margin to some ASEAN countries but not others,” said Razeen Sally, a director of the Brussels-based European Centre for International Political Economy, a trade-policy research group. “Basically it takes down the tariffs but does little on all the non-tariff barriers where you would have much bigger gains to trade.”

China's trade with ASEAN has jumped six-fold since 2000 to US$193 billion last year, surpassing that of the U.S. China's share of Southeast Asia's total commerce has increased to 11.3 percent from 4 percent in that time, whereas the U.S.'s portion of trade with the bloc fell to 10.6 percent from 15 percent, ASEAN statistics show. During that time, ASEAN's trade deficit with China widened by five times to US$21.6 billion. The bloc reported a US$21.2 billion trade surplus with the U.S. last year, down 12 percent from 2000.

The trade agreement would hit high-tariff industries in Indonesia and the Philippines more than other ASEAN countries, Sally said. Trade in parts and components, the “central artery” of China- ASEAN economic ties, won't be affected much because most of those tariffs are already near zero, he said.

Opposition to the trade agreement has been loudest in Indonesia, where the government has sought to placate concerns that industries including textiles, food and electronics will suffer. Indonesia should renegotiate the deal because the textile industry may see its domestic market share decline by 50 percent as cheaper Chinese goods enter the market, said Ade Sudradjat, vice chairman of the Indonesian Textile Association.

The government is setting up a team to monitor trade practices, Hatta Rajasa, coordinating minister for the economy, told reporters in Jakarta Wednesday.

Indonesia, ASEAN's biggest economy and home to about 40 percent of the bloc's 584 million people, has required Chinese exports of garments, electronics, shoes, toys and food to be shipped from designated ports with every container inspected upon arrival. China, poised to overtake Germany as the world's largest exporter this year, faces 101 trade investigations in 19 countries, state-run Xinhua News Agency reported this month.

To help its exporters, China has halted the yuan's gains against the dollar from July last year. In 2009 the yuan has remained largely unchanged against the dollar while Indonesia's rupiah climbed 15.5 percent, Thailand's baht advanced 4.2 percent and the Philippine peso increased 2.3 percent.

ASEAN includes Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Wide economic disparity has hindered the group's efforts to form a single market, as the purchasing power of the group's four richest countries was 10 times greater than that of the other members last year, according to statistics on the bloc's Web site.