At the start of 2010 a new free trade area was established incorporating China and the six

founding members of the Association of Southeast Asian Nations (ASEAN). These countries
are Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand. The aim is to
eliminate 90% of imported goods. This deal created the largest trade area in the world, with
nearly 1.9bn people. Although there are undoubted gains there have also been warnings
from South East Asia that some industries are not ready to compete with China and that jobs
will be lost. 
Outline the potential advantages and disadvantages of joining this area for the member
countries. What factors determine the extent to which industries within a country gain or
lose? 

When a bunch of countries group together to kick start a venture, invariably the country that
is strong in terms of economy and defence takes the lead. As expected, the other countries
would fall in line fearing backlash from the powerful country. Similarly, in 2010 when China
suggested a deal between them and the leaders of ASEAN, they had to agree. 

It started by reducing tariffs on 90% of the products leading an increase in trade from $59.6
billion to US$192.5. Thus, the combined nominal gross domestic product rose to $6 trillion.
After the first six countries attained their goal, 4 other countries slashed their tariffs making
the count of ASEAN countries 10. It was easily the largest trade on the basis of nominal GDP
and Population and third in terms of volume.

International specialisation, increase in world production and consumption, higher efficiency

has all been cited as the advantages of the deal. The media in Beijing was quick to blow the
trumpet and claim how beneficial the deal was for the ASEAN countries. To add fuel to the
fire, the then premiere of Philippines Gloria Macapagal-Arroyo termed it as a “formidable
regional grouping” that would stand toe to toe with the US and EU. But it doesn't matter how
beautiful the painted picture is, because eventually it would be a deal benefiting China rather
than ASEAN.

However, the picture is not as straightforward as a Chinese Atlas lifting the East Asian world
on his shoulders. It is true that the demand from a growing China was a vital factor in the
growth of Asian economy. Aforementioned undeniable advantages comprising increased
production, efficiency and specialization cannot be claimed as false but the ever-growing fear
about China growing at the expense of these countries could be warranted.

For starters, in 1994 China devalued its currency to drive foreign investments. Around the
same time, the contribution of foreign investments in Asia by ASEAN countries shrunk from
30% to 10%. A United Nations report pointed fingers at the increase in China for the same.
Now coming to the issue at hand, trade which is of greater concern. An estimate puts up to
80% of the shoes being sold in Vietnam as Chinese made. In the Philippines, the paper to tile
industry was affected 

Above experiences created fears about East Asia becoming dumping grounds for Chinese
products.  But the fears have never materialised to something useful as it was not in the best
interest of the countries to be in China’s bad books.
Thus, with all the issues plaguing the Asian countries, it is difficult to observe the net benefit
that they will have. With a low average pay in China, they lose out on labour-intensive
manufacturing.
Agriculture as in the case of Thailand has shown that China will be the winner. Maybe some
countries will gain competitive advantage in the future in some industries, but even that will
not prevent China from changing their policy if ‘half open’ trade, that is, "open or free trade
on the export side and protectionism on the import side." These trends will rise eventually
causing China to control the neighbouring domestic markets.

Generally, there are factors that determine whether a country will gain or lose or lose from a
trade.

a. Differences in Cost Ratios: Differences in cost ratios between two trading countries
affect the gains. Suppose one country has an advantage in the product of wheat and
another in rice, a trade between the two countries would be mutually beneficial.

b. Reciprocal Demand: Reciprocal demand is the “the relative strength and elasticity of
demand of one country for the product of the other in exchange for its product”. If
Country A’s demand for product Y is more than B has for X, then trade will be in
favour of B and vice versa
 
c. Level of Income: A country having more levels of income will have better gains from
trade. Those products should have demand.

d. Terms of Trade: The trade agreement between two countries will definitely have
certain specific conditions that must be met.  It would be a fair or inclining towards
one country depending on the countries present

e. Efficiency:  When efficiency is high cost will be low thus product price will low be
leading to a foreign country importing the low-cost products and gaining from the
trade

f. Technological advancement: A technologically advanced country with its capital will

have huge volume of trade and thus gain will be large 

g. Size of the country: The size of the country geographically plays a part in the gains. A
small country can specialize in a particular product and gain by trading with a large
country provided a fair agreement

With China enjoying a superpower status, all these factors were tilted in their favour while
drafting the deal.
 
References

https://asean.org/?static_post=the-economic-benefits-to-asean-of-the-asean-china-free-trade-
area-acfta-by-raul-l-cordenillo
http://www.china.org.cn/english/FR/30000.htm

https://www.tni.org/en/article/the-china-asean-free-trade-area-propaganda-and-reality

https://www.enterprisesg.gov.sg/non-financial-assistance/for-singapore-companies/free-
trade-agreements/ftas/singapore-ftas/acfta

https://en.wikipedia.org/wiki/Potential_superpowers#:~:text=Parag%20Khanna%20stated
%20in%202008,in%20its%20gross%20domestic%20product.

https://www.yourarticlelibrary.com/trade-2/international-trade/11077