Progress of the China-ASEAN Free Trade Area

Zhang Bin Wang Xinjie

Department of World Economics, Business School of Wuhan University

AddressDepartment of World Economics, Business School of Wuhan University Post Code430072 E-mailzhangbon55@hotmail.com

Progress of the China-ASEAN FTA

Abstract

In November 2002, China and ASEAN signed Framework Agreement on

Comprehensive Economic Co-operation between the Peoples Republic of China and the Association of South East Asian of Nations, which determined the basic structure of

China-ASEAN Free Trade Area. In recent two years, the construction of China-ASEAN Free Trade Area has achieved great progress. The co-operation in a variety of areas between the two sides has been developing gradually. The development of the economic collaborations between China and ASEAN has already entered into a new stage.
Key WordsChina-ASEAN Free Trade Area Progress

Regional economic co-operation is one of the main development trends of current world economy. Establishing various preferential arrangements on economic and trade co-operation, as well as participating in regional economic co-operation organizations in order to seek more opportunities for economic development, has become an important political choice for most countries. China-ASEAN Free Trade Area is the first formal regional integrative organization that China has ever participated in. Not only will it be of great importance for China, but also have great impact on the economic and political relationship between China and ASEAN. This article is to analyze the implementation progress of China-ASEAN Free Trade Area since the signature of Framework Agreement on Comprehensive Economic Co-operation between the Peoples Republic of China and the Association of South East Asian of Nations (hereinafter briefly referred as Framework Agreement), as well as make predictions on the developing foreground and trend.

Part One The Basic Conditions before the Startup of China-ASEAN FTA
Since the 1990s, the relationship between China and ASEAN has been developing rapidly. It is at their best phrase in history. In December 1997, the uppermost leaders of China and ASEAN met for the first time. The meeting
2

determined the neighborly mutual-trusting fellowship. Subsequently, China signed the general agreement for bilateral co-operation facing 21st century with all the ten ASEAN nations, which determined the integral targets, guidelines of actions and domains of bilateral co-operation, especially determined the important status and concrete domains of bilateral eco-commercial co-operation. In regard to trade in goods, the bilateral trade between China and ASEAN increases rapidly. Following Japan, USA, EU and Hong Kong, ASEAN has been the fifth trade partner of China for many years. From 1994 to 2001, the trade volume between China and ASEAN has increased from $13.28 billion to $38.488 billion. Except for the volume in 1998, which was influenced by the South East Asian Financial Crisis and declined a little, the growth rate of bilateral trade for all the other years kept above 20% (see Table 1). Meanwhile, the proportion of bilateral trade in the total external trade for both sides has been increasing year after year. According to the results of statistics (see attached table), from 1995 to 2000, the proportion for China has increased from 6.9% to 8.3%, where the proportion for export has increased from 6.42% to 6.96% and the proportion for import has increased from 7.37% to 9.58%; the proportion for ASEAN has increased from 2.9% to 5.0%. In regard to mutual investment, ASEAN is an essential area from which China attracts foreign investment. The foreign investment of ASEAN from China also increases rapidly. By the end of 2001 1 , the projects invested by the ASEAN members in China add up to 17,972 items with consultative amount of $53.468 billion which accounts for 7.2% of the total amount of investment attracted by China; The actual investment amount add up to $26.175 billion which accounts for 6.6% of the total amount of investment. At the same time, the investment made by Chinese enterprises towards ASEAN also increases year after year. By the end of 2001, the projects invested by Chinese enterprises in the ASEAN members add up to 740 items with total project investment of $1.091 billion among which there is $0.655 billion from China side. In addition, from 1998, ASEAN has become Chinas most essential overseas market of project contract, instead of the Middle-East Area, where Singapore is the biggest foreign market to which China sends overseas labors. In 2001 2 , Chinese enterprises signed 3833 contracts and labor co-operation projects with the ASEAN members with contracted amount of $2.6 billion and turnover of $2.089 billion
The Status and Prospect of the Development of Economic and Trade Relation between China and ASEAN, Southeast Academe Research, No. 5 2002, PP.75-79 2 Same with note 1 3
1

accomplished, where contracted amount of contract projects amounts to $1.83 billion and the accomplished turnover is $1.203 billion, and contracted amount of labor co-operation amounts to $0.719 billion and the accomplished turnover is $0.795 billion. Table 1. The Integral Situations of China-ASEAN Trade since 1994 $100 million Year
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Export and Import Sum 132.8 184.03 192.06 228.95 216.21 256.83 367.14 384.88 547.7 782.52 566.61 Rate% 23.7 39.3 4.4 19.2 -5.6 18.8 43 4.8 31.7 42.89 38.06 China Export Sum 63.78 90.01 88.18 109.19 93.47 111.76 155.89 163.21 235.68 309.25 221.66 Rate % 36.2 41.1 -2 23.8 -14.4 19.6 39.5 4.7 28.3 31.22 34.10 China Import Sum 68.3 94.02 103.88 119.7 122.74 145.07 211.25 221.67 312 473.27 344.94 Rate% 13.9 37.7 10.5 15.3 2.5 18.2 45.6 4.9 34.4 51.70 40.72 Balance Sum -4.52 -4.01 -15.7 -10.57 -29.27 -33.31 -55.36 -58.46 -76.3 -164.02 -123.28

Note Data of 19942001 is of six countries of ASEANBrunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand Data of 2002-2004 is of the whole ASEAN Data of 2004 is the sum of Jan.-July. ResourceCompiled from the statistics of China Customs
3

Considering the more and more frequently political and eco-commercial communications between China and ASEAN, on November 6, 2001, Chinese Prime Minister Zhu Rongji formally put forward the idea of constructing a China-ASEAN Free Trade Area and the proposition of strengthening the political mutual trust and support between China and ASEAN.

Data of 1994~2002 is from Negotiations between one and ten: Analyze the influencing factors and difficulties for China-ASEAN Free Trade Area, Intertrade, No.8 2003PP.22-27; Data of 2003 and 2004 from http://yzs.mofcom.gov.cn 4

Part Two Fundamental Contents of China-ASEAN FTA

In November of 2002, China and ASEAN formally signed the Framework Agreement. There are three parts and four Annexes 4 with 16 articles in Framework Agreement, which includes Preamble, Objectives, Measures, Trade in Goods and Services, Investment, Early Harvest, Other Areas of Economic Co-operation, Timeframes, Most-Favored Nation Treatment, Dispute Settlement Mechanism, Institutional Arrangement for Negotiations and so on. According to Framework Agreement, the objectives 5 of China-ASEAN FTA are to: a) strengthen and enhance the co-operations in economy, trade and investment between the Parties; b) progressively liberalize and promote trade in goods and services as well as create a transparent, liberal and facilitative investment regime; c) explore new areas and develop appropriate measures for closer economic co-operation between the Parties; d) facilitate the more effective economic integration of the newer ASEAN Member States and bridge the development gap among the Parties. The Parties agree to take measures for the economic co-operation as follows: a) progressive elimination of tariffs and non-tariff barriers in substantially all trade in goods; b) progressive liberalization of trade in services with substantial sectoral coverage; c) establishment of an open and competitive investment regime that facilitates and promotes investment within the China-ASEAN FTA; d) provision of special and differential treatment and flexibility to the newer ASEAN Member States; e) provision of flexibility to the Parties in the China-ASEAN FTA negotiations to address their sensitive areas in the goods, services and investment sectors; f) establishment of effective trade and investment facilitation measures; g) expansion of economic co-operation in areas as mutually agreed on between the Parties that will complement the deepening of trade and investment links between the Parties; and h) establishment of appropriate mechanisms for the purposes of effective implementation of the Agreement. Trade in Goods, Trade in Services, Investment and Other Areas of Economic

Four Annexes include Specific Products covered by The Early Harvest Programme, Exclusion List of a party for

products excluded from The Early Harvest Programme, Product Categories for Tariff Reduction and Elimination, Implementation Timeframes. 5 See Framework Agreement on comprehensive economic co-operation between the Peoples Republic of China and the Association of South East Asian of Nations 5

Co-operation are all concluded in China-ASEAN FTA. 1. Trade in Goods China-ASEAN FTA adopts closed preferential tariff measures in this area, and meanwhile it doesn't increase trade barriers against the countries out of this area. It implements a pattern of eliminating the duties year by year similar to CEPT of ASEAN FTA, and divides the products into 3 categories, including more than 6000 kinds of products. (a) Early Harvest Products: China and ASEAN have already negotiated to determine on the scope of the Early Harvest Products, involving more than 600 agricultural products. And they agree to eliminate the tariff rates of these products to 0%-5% within 3 years at the latest Jan 1, 2004. The newer ASEAN Member States 6 can be delayed for 3 or 4 years. (b) Sensitive Products: In order to guarantee the consistence of the sensitive products restriction standard of China and ASEAN, all Parties of Framework Agreement can list sensitive Products. The maximum standard is a certain percent of the volume of trade and the amount of the products, and the tariff rate of sensitive products will apply the Most-Favored Nations tariff rates before the completion of the FTA. (c) Normal Products: They are the products except for Early Harvest Products and Sensitive Products. High tariff rates of some products will be gradually reduced by a deeper degree. Furthermore, the Parties should negotiate on agricultural products Out-of quota. The Rules of Origin is an important content of Framework Agreement, and the standard of local contents is the core of carrying out the rules of origin. Generally speaking, the higher the requirement of local contents or added value is, the more effectively it can prevent the products out of the area from taking advantages of the free trade area, thereby to promote the growth of trade in the area. But, it may also form a trade barrier against the products out of the area, and bring trade-diversion; on the converse, the lower the requirement of local contents or added value is, the greater chance the products out of the area can enjoy the preferential treatment of free trade area through simple process. China-ASEAN FTA will set the principle of cutting down non-tariff measures, and guarantee that non-tariff measures do not become obstacles of free trade. Non-tariff measures that Framework Agreement involves include: Anti-dumping and
6

Refer to Cambodia, Lao PDR, Myanmar, Viet Nam 6

anti-subsidy tariff, standard, authentication, pricing, import license, import quota, animals and plants health quarantine, etc. Implementation of non-tariff measures is for simple, transparent and effective management. Anti-dumping measure, animals and plants hygiene quarantine, the import license and import quota are the main non-tariff measures of China and ASEAN. 2. Trade in Services In order to promote the liberalization of Trade in Services of China-ASEAN FTA, the Parties, on the basis of the WTO General Agreement on Trade in Services (GATS), will enhance the co-operation in services and reduce the trade restriction in services and expand the depth and scope of liberalization of trade in services. China and ASEAN can release the restriction of trade in services properly, especially enhance the co-operation of respects of the tourism services, distributing services, commercial services, and promise to move forward to trade in services, such as finance, insurance and telecommunication, steadily according to GATS norm and WTO. 3. Investment It is the main objective of Framework Agreement to promote the capital float in FTA, and attract the investment beyond the FTA, and create a liberal, facilitative, transparent and competitive investment regime. China and ASEAN will strengthen co-operation in investment, facilitate investment and improve transparency of investment rules and regulations. The scope of China-ASEAN FTA Investment Agreement applies to direct investment, investment restriction and stock equity stipulation restrained by the relevant laws and regulations on domestic investment of various countries. 4. Other Areas of Economic Co-operation The parties agree to strengthen their co-operation in 5 priority sectors as follows: agriculture, information and communications technology, human resources development, investment and Mekong River basin development. And co-operation will be extended to other areas, including banking, finance, tourism, industrial co-operation, transportation, telecommunication, intellectual property, small and medium-sized enterprises (SMEs), environment, bio-technology, fishery, forestry and forestry products, mining, energy and sub-regional development. Measures to strengthen co-operation, which has been agreed on by the Parties, include: (a) promotion and facilitation of trade in goods, services and investment, including the coincidence standards, technical barriers to trade/non-tax measures, customs co-operation, and so on (b) enhancing the competitiveness of SMEs (c)

promotion of E-commerce

(d) capacity building

(e) technological transfer

In addition, Framework Agreement has given the schedule of China-ASEAN FTA development processes, which bring up the time of negotiation and execution on trade in goods, trade in services, investment, together with other areas of economic co-operation. For trade in goods, the negotiations on the agreement for tariff reduction or elimination and other matters shall commence in early 2003 and be concluded by June 30, 2004. The negotiations on the Rules of Origin for trade in goods shall be completed no later than December 2003.China and the Six Countries of ASEAN 7 will establish the China-ASEAN FTA covering trade in goods by 2010, and by 2015 for the newer ASEAN Member States. For trade in services and investments, the negotiations on the respective agreements shall commence in 2003 and be concluded as expeditiously as possible in accordance with the timeframes. For other areas of economic co-operation, the Parties shall continue building upon existed programs, develop new economic co-operation programs and conclude agreements on the various areas of economic co-operation. The Parties shall do so expeditiously for early implementation in a manner and at a pace acceptable to all the parties concerned. To ensure the implementation of Framework Agreement, Institutional Arrangements for the Negotiations and Dispute Settlement Mechanism will be established for the development of China-ASEAN FTA. The China-ASEAN Trade Negotiation Committee (China-ASEAN TNC) has been established to carry out the programs of negotiations set out in Framework Agreement. The Parties may establish other bodies if necessary to co-ordinate and implement any economic co-operation activities undertaken according to Framework Agreement. China and ASEAN will build appropriate, formal dispute settlement mechanism to carry out Framework Agreement.

Part Three Progress and Breakthrough of China-ASEAN FTA after the Startup of China-ASEAN FTA
Although negotiations for China-ASEAN FTA on trade in goods have not been

Refer to Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand 8

completed yet, but the trade between China and ASEAN has developed forward smoothly, and the bilateral volume of trade increased from $547,67 million in 2002 to $78,252 million in 2003. Up to now, after 15 meetings held by China-ASEAN Trade Negotiation Committee, both sides have already agreed on the main issues of Trade in Goods, Services, Investment and Co-operation of Economic and Technology, and have reached extensive common understandings. 1Postponed negotiations of trade in goods and evolutional trade relations From January 1, 2004, the Early Harvest plan under the frame of China-ASEAN FTA has already entered into effect. Tariffs of about 600 kinds agricultural products including fruits and vegetables begin to be reduced, and by 2006 the tariffs of these products will be eliminated 8 . However, because of some difference in some technological aspects between ASEAN and China, the negotiation of trades in goods, which should be finished on June 30, 2004, is still in process. Pengiran Mashor Pengiran Ahmad, Deputy secretary-general of ASEANs Secretariat, pointed out that different suggestions would not influence the negotiation progress of Free Trade Area. It is estimated, before the leaders meeting of China and ASEAN in November 2004, that the negotiation of trade in goods will be finished 9 . Though negotiations of trade in goods are postponed temporarily, but it has not influenced the smooth development of bilateral trade between ASEAN and China at all. The amount of goods trade between China and ASEAN reached $78,252 million in 2003, and grew by 42.89% compared with 2002(See Table 2). In the first half year of 2004, the amount of goods trade between China and ASEAN reached $47,798 million, and increased by 39.7% compared with the same period of last year 10 .. By the end of this year, it is hopeful that the trade between China and ASEAN would exceed $100 billion with such rate of growth.

Table 2. Bilateral Trade of China-ASEAN Free Trade Area started since 2003
8

Under the timeframes of The Early Harvest Programme, the tariffs of 188 items of fruit and vegetables have been eliminated from October 1,2003, between China and Thailand. On June 3,2004, China, Thailand, and Singapore signed the protocol, and planed to expand zero tariff of fruits and vegetables between China and Thailand, to China, Thailand, and Singapore. (Economic Information Daily, August 30, 2004) 9 http://www.chinanews.com.cn, September 19, 2004 10 According the latest statistics of Ministry of Commerce of China, from January of 2004 to August, the value of bilateral trade of China and ASEAN reached $65.6 billion. (http://www.chinanews.com.cn, September 19, 2004) 9

million $
2003 Country/area
Brunei Darussalam Myanmar

2004.1-6 Import 31228 16953 2600 574830 1120 1398667 630630 1048376 882706 145580 4732689 Total 21271 54784 22654 610344 6033 1215724 575626 1192454 777513 303453 4779855 Export 1941 42928 21288 266006 5444 358511 195501 539557 241105 176378 1848658 Import 19330 11856 1366 344338 589 857213 380125 652897 536408 127075 2931198

Total 34617 107725 32065 1022905 10944 2012782 940010 1935228 1265529 463431 7825236

Export 3389 90771 24965 448075 9824 614115 309381 886853 382823 317852 3092547

Cambodia
Indonesia

Lao PDR
Malaysia Philippines Singapore Thailand Viet Nam

ASEAN

RecoursesCompiled from the statistics of Chinese CustomsIntertrade, 2004 Vol.2 and Vol.8

2Bilateral investment increasing rapidly At present, neither side has carried on a negotiation with concrete co-operation in the field of investment and service trade yet. But co-operation between both sides in this field is closer day by day. The investment between China and ASEAN develops from the one-way investment, which belongs to Enterprises of ASEAN, to now the mutual investment in which China and ASEAN are both as the investment target's countries. In recent years, because of geographical proximity and the similar culture background, the ASEAN countries have already become the investment focus of Chinese enterprises gradually; the scale of investment expands year by year and the growth rate of investment is speedy. Now, ASEAN has already become the third largest destination of Chinas investment, following Hong Kong and USA. According to the statistics disclosed by the Department of Asian Affairs of Ministry of Commerce of China 11 , by the end of 2003, the number of investment projects of Chinese enterprises in the ASEAN countries has already risen up to 857 and the amount of investment from China is about $940 million. At the same time the number of investment projects of ASEAN enterprises in China has already risen up to 22075; the investment agreed upon amounts to $64,590 million which is about 6.85% of the total contract value of the
11

http://www.drcnet.com, July 12, 2004 10

foreign capitals absorbed by China and the actual investment amount is 32,370 million dollars which is about 6.46% of the actual value of foreign capitals used by China. 3Economic co-operation among other areas developing progressively With the speed-up of trade negotiation on CAFTA, China and ASEAN strengthened the co-operation in other areas of Economic Co-operation, and achieved great improvement. The Joint Declaration, released at the 7th Leaders meeting of ASEAN and China (10+1), emphasized that both sides should deepen co-operation in key areas, such as agriculture, information and telecommunications, human resources development, mutual investment and the Mekong River Basin development, and earnestly implement long and medium-term co-operation programs 12 . a) Co-operation in Information and Communications Technology (ICT): On October 6 2003, China and ASEAN economic ministers and information ministers signed the memorandum of understanding at Bali, Indonesia, which opened the new page of mutually beneficial co-operation among countries in this area. The memorandum contains human resources development, information infrastructure development, technology development, ICT application development, e-ASEAN Projects implementation, exchange of information, etc. And these Parties will hold annually, or as often as required, the ASEAN-China Seminar on ICT. b) Co-operation on the development of Mekong River Sub-region: On August 19 2003, the fifth ministerial conference 13 was held to talk over ASEAN- Mekong River Basin development and co-operation, where Chinese Government expressed that it would strengthen the co-operation with Lancang River - Mekong River sub-region countries in each field and construct Lancang River - Mekong River Sub-region as the demonstrative area of China-ASEAN FTA. On April 30 2004, to strive for the facilitation of transportation in the greater Mekong River sub-region composed of 6 countries, at the first session, Chinese Government signed the phase 1 annexes and protocols of the Agreement for Facilitation of the Cross-Border Movement of Goods and People in the Greater Mekong Subregion. Chinese Government has already established a committee including such five departments as public security, quality testing, customs, traffic and diplomacy, to promote the fulfillment of the facility of transportation as soon as possible.
Joint Declaration of The Heads of State/Government of The ASEAN and The Peoples Republic of China on Strategic Partnership for Peace and Prosperity, http://www.aseansec.org/15265.htm 13 The ministerial conference of ASEAN-Basin of Mekong River, initiated in 1996, is an important economic cooperation mechanism in the Basin of Mekong River at present, which is composed of 10 ASEAN members and China. 11
12

c) Promotion of traffic convenient co-operation: China and ASEAN support actively the construction of pan-Asian railways and roads. The joint statement of 2nd ASEAN Transport Ministers Meeting-China in Rangoon Burma on October 25 2003, show that building an integrated transport network is a vital supporting infrastructure to an China-ASEAN FTA. Both sides will draft a memorandum of understanding on co-operation of the traffic of China-ASEAN, which will formalize policy dialogues and cooperative programs between ASEAN and China in transport infrastructure development and construction, maritime safety, human resource development in maritime, and information exchange, etc. And both sides endorsed the implementation of the initial joint projects and activities covering port management and marketing, inland waterways regulation and joint table-top search and rescue exercise. 4Closer social co-operation between China and ASEAN The most significant event of the social co-operations between ASEAN and China is that the two sides fought against SARS hand in hand. At the informal summit meeting of ASEAN and China held in Bangkok of Thailand in April of 2003, Joint Statement of the Special ASEAN-China Leaders Meeting on the Severe Acute Respiratory Syndrome (SARS) was released. And it announced that both sides will expand the cooperative channel together, and regenerate the economy of various countries, and rebuild the confidence of East Asia. Joint Declaration of the Heads of ASEAN and China, in October 2003, aimed at strengthening public health co-operation, setting up the 10+1 special fund for health co-operation, and starting 10+1 Health Ministers meeting mechanism. This declaration also emphasizes China and ASEAN should take further active exchanges in science and technology, environment, education, and culture as well as personnel exchange, and improve co-operation mechanisms in these areas. And efforts will be also made to enhance tourism co-operation and deepen understanding and friendship between the people of their countries. The co-operation of ASEAN and China in politics, economy, regional safety, social culture, etc., will deepen further, and will play a positive role in the economic and social development and regional safety of both sides.

Part Four

12

Developmental Trend and Prediction of China-ASEAN FTA

Since the start-up of China-ASEAN Free Trade Area, it has impelled the further development of economic and technological co-operation between China and ASEAN, and is taking on a better trend of development. According to the present situation, China-ASEAN Free Trade Area will continue to extend itself from the following aspects in the future. Trend One: Political driving force will develop into one of the main forces to impel China-ASEAN Free Trade Area. Generally speaking, both China and ASEAN are developing countries with a relatively low development level. Besides, there still exist differences between China and ASEAN in such aspects as economic developmental level, economic system, laws and regulations, etc. Therefore, it seems to be unworkable between China and ASEAN to set up free trade area in the near future from a traditional point of view. However, facing the risks of globalization, Chinese government and member governments of ASEAN have realized that it is impossible to maintain economic security and stability only by depending on their respective power and that it is necessary to establish regional economic co-operation in order to lower the risks arising from economic globalization. Taking this factor into consideration, it is quite likely for Chinese government and member governments to promote the development of the FTA by political power when necessary. Since China-ASEAN Free Trade Area started, there have been frequent reciprocal visits at a high level between China and ASEAN. As a result, both sides settled many disputes peacefully through negotiations, made some common understandings constantly among international affairs, and strengthened political mutual trust and security co-operation constantly. In 2002, China and ASEAN signed The Action Declaration of Each Side of the South China Sea to ensure the peace and stability of the South China Sea Area. In October of 2003, China formally joined The Southeast Asian Treaty of Friendship and Co-operation, indicating that China is a big regional country that shoulders the responsibility. Meanwhile, Chinas entry also helped to improve the status and strengthen the influencing power of ASEAN at an international level. ASEAN and China also signed Joint Declaration of the State Leaders between PRC and ASEAN in October of 2003, announcing that China and ASEAN established a strategic partnership for peace and prosperity, further strengthened mutual trust by taking Chinas entry into The Southeast Asian Treaty of Friendship and Co-operation as the starting point, carried out The Action Declaration
13

of Each Side of the South China Sea by discussing and planning the specific means, fields and programs of the subsequent action, and kept consultation and negotiation on the Protocol of Chinas entry into Southeast Asia Nuclear-free Zone Treaty. It is doubtless that the good political relations between China and ASEAN will advance the process of establishing free trade area. Trend Two: The economic co-operation between China and ASEAN will drive the development of economic co-operation in the whole East Asia, and extend to other countries in East Asia gradually. After the Asian financial crisis of 1997, China, Japan, South Korea and ASEAN advocate strengthening the regional co-operation of East Asia, in order to cope with the new financial impact that the economic globalization has brought about by integrating the power of regional groups and to realize the co-win of economic co-operation. In October of 1997, the cooperative mechanism among ASEAN, China, Japan and South Korea (10+3) came into being. This cooperative mechanism fully covers the benefit of each side especially that of medium and small countries on the basis of the original co-operation of ASEAN, develops a school of its own among the regional co-operation mechanisms, and becomes the biggest inter-government cooperative mode in Asia 14 . The start-up of China-ASEAN FTA has promoted the process of economic co-operation of East Asia further, and accumulated the experience with demonstrative value for closer co-operation for all economies in East Asia. While advancing the process of China-ASEAN FTA actively, ASEAN advocates that such big countries as China, Japan, and USA, etc. are supposed to be involved in it multilaterally, and insists that it set up free trade area with China, Japan and South Korea respectively in order to form the balanced pattern of triangular strategy within the area. At present, the consultation and negotiation of free trade between ASEAN and Japan, between ASEAN and South Korea are going on like a raging fire, which will lay the foundation for the establishment of the whole East Asia Free Trade Area. Trend Three: The rapid development of China-ASEAN FTA will promote the cooperative field to extend to such areas as finance and currency co-operation progressively, and impel the stagnant monetary co-operation of East Asia. After the start-up of China-ASEAN FTA, trade within the area will be expanded rapidly, which will inevitably lead both sides to go on more co-operation on credit payment and settlement. On the other hand, facilitated investment can also increase
14 A New Pattern of Regional Economic Cooperation in East Asia: China-ASEAN Free Trade Area, Research on Financial and Economic IssuesNo. 6 2002, PP.49-52

14

financial exchanges of both sides. In this case, the co-operation between China and ASEAN will extend progressively to such fields as finance and money etc. The co-operation of financial field, especially monetary co-operation, will reduce transaction cost of member countries in China-ASEAN FTA, promote production factors to flow freely in the whole trade area, and thus impel the development of China-ASEAN FTA further. In addition, the further co-operation between China and ASEAN can also bring the potential political benefit to every member country; the deepening of economy interdependence within the area is advantageous to maintain the security of this area; the deepening of co-operation within the area is also favorable to increase the economic and political weight of Asia among international affairs. In a word, the establishment of China-ASEAN FTA is not only of crucial importance to the development of this area, but also of strategic significance to the peace and security of this area. Though the cooperative road of 10+1 is also zigzag, united China and ASEAN will make great efforts to establish the inter-country trust, to guarantee the unity and peace within the area, and thus to realize the common goal of development.
References 1. Qi Huan and Du tao, Review of the Development of Political and Economic Relation beween China and ASEAN in 2003, Journal of Yunnan University of Finance and Economics, Vol.19 3,PP.6-7 2. Chen Wen, ASEAN and Sino- ASEAN Free Trade Zone in 2003, Around Southeast Asia, No.1 2004, PP.39-45 3. Wang Qin, Progress and Prospect of China-ASEAN Free Trade Area, Journal of Xiamen University (Arts & Social Science), No.1 2004, PP.85-93 4. Framework Agreement on Comprehensive Economic Co-operation between the Peoples Republic of China and the Association of South East Asian of Nations, and Annexes 1-4, http://gjs.mofcom.gov.cn/200212/ 5. Group for Comparative Research of Multi-scheme for Regional Economic Co-operation, The Development Research Center of the State CouncilNegotiations between one and ten: Analyze the influencing factors and difficulties for China-ASEAN Free Trade Area, Intertrade, No.8 2003PP.22-27 Wang Qin, The Status and Prospect of the Development of Economic and Trade Relation between China and ASEAN, Southeast Academe Research, No. 5 2002, PP.75-79 7. Research Group on Chinas WTO Accession and ASEAN Economies, Center for WTO Studies, Xiamen University, On China-ASEAN Economic & Trade Relations After Chinas
15

6.

Accession to the WTO, Southeast Asian AffairsNo.1 2002, PP.1-6 8. Sun Yucong and Wu Dongmei, A New Pattern of Regional Economic Co-operation in East Asia: China-ASEAN Free Trade Area, Research on Financial and Economic IssuesNo. 6 2002, PP.49-52 9. Zhang Xinwei, Status and Prospect of Investment in China from ASEAN countries, International Economic Co-operation, No.12 2003 10. Du Qunyang and Song Yuhua, The Effect of FDI in China-ASEAN Free Trade Area, International Trade JournalNo.3 2004, PP.51-54 11. [Philippine] Fidel V. Ramos, Research on China-ASEAN Free Trade Area, World Economics and PoliticsNo.1 2004, PP.61-64 12. ASEAN-China Expert Group on Economic Co-operationForging Closer ASEAN-CHINA Economic Relations in the 21 CenturyWorking Paper October 2001 13. H.E. Ong Keng Yong Securing a Win-Win Partnership for ASEAN and China http://www.aseansec.org/16255.htm 14. Pengiran Mashor Pengiran Ahmad ASEAN Plus Three Perspectives of Regional Integration in East Asia and the Lessons from Europe November 2003 http://www.aseansec.org 15. Sheng Lijun China-ASEAN Free Trade Area Origins, Developments and Strategic MotivationsISEAS Working PaperInternational Politics & Security IssuesSeries No. 1(2003) 16. Thitapha Wattanapruttip, ASEAN-China Economic Relationships and Co-operation in Trade and Investment: Patterns and Potential, Presented at the Symposium on China-ASEAN Entrepreneur Exchanges, Chengdu, China, October 2001from http://www.aseansec.org/

Attachment TableASEAN-China Trade and Investment Interaction

Area

ASEAN 1/

China 2/

16

1991 1995 2000 1991 1995 2000

1. Merchandise trade 3/

Total value (US$ billion) ASEANs trade with China (% of total trade of ASEAN) Chinas trade with ASEAN (% of total trade of China) 2. Tourist arrivals (million)

343.8 675.6 795.0 135.8 281.1 474.3 2.3 2.9 5.0 -- not applicable -6.9 8.3

-- not applicable -- 5.8

Total number ASEAN tourists in China China tourists in ASEAN 3. Investment flows (US$ billion) Total FDI outflows5/ Total FDI inflows 6/ 5. Ratios of production to trade (%)

11.7 17.7 22.6

9.5

16.1 19.8/4 1.1 1.8

-- not applicable -- 0.3 n.a. 0.8

2.3 -- not applicable --

1.1

7.0

7.5

0.9 4.4

2.0

2.3

13.2 24.8 13.4

35.8 40.8

Trade/GDP ASEANs trade with China/ASEAN's GDP Chinas trade with ASEAN/Chinas GDP

93.5 105.3 138.6 34.0 40.2 43.9 2.1 3.0 6.9 -- not applicable -2.8 3.7

-- not applicable -- 2.0

Resource Compiled from database of IMF, International Financial Statistics and Direction of Trade Statistics; of ASEAN National Tourism Organizations and World Tourism Organization; from
UNCTAD, World Investment Report, various issues; from ESCAP, Economic and Social Survey of Asia and the Pacific, various issues; and from ADB, Development Outlook and Key Indicators of Developing Asian and Pacific Countries, various issues. This Table is from 16th reference. Notes: 1 Brunei Darussalam, Cambodia (from 1999), Indonesia, Lao PDR (from 1999), Malaysia, Myanmar (from 1997), Philippines, Singapore, Thailand and Viet Nam (from 1995) 2 Excluding the Special Administrative Region of Hong Kong. 3 Both exports (f.o.b.) and imports (c.i.f.). 4 1999. 5 Indonesia, Malaysia, Philippines, Singapore and Thailand only. 6 Same as above plus Viet Nam.

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