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China and AEC

Updated On: Feb 23, 2009

ASEAN (Association of South East Asian Nations) Charter effective from 15 December 2008 in ASEAN Secretariat Jakarta brings the organization one step closer to regional cooperation, economic integration and developing the ASEAN Community.

The establishment of Asian Economic Community Council will see the holding or summit twice per year to advance the building of ASEAN Economic Community. The council will replace summit of ASEAN economic minister.

Economic integration will be a priority with the institution of a program of structural adjustment to bridge gap between ASEAN countries and also look at new approach in executing business among member states.

This would also facilitate the structural adjustment requested by many international financial institutions in organizing their programs. It is not meant to be an intervention mechanism or violate state sovereignty.

Principle of free flow of skilled labor is legalized through the Charter. It is an ideal of AEC purposed by ASEAN Charter.

Pushpanathan Sundram is appointed as ASEAN Secretary General Deputy for ASEAN Economic Community (AEC), effective from 1 January 2009. He assists the ASEAN Secretary General in realizing AEC on 2015, executing the blueprint of AEC going in the direction of establishment of Single Market and Production Base, that is competitive and global economic region.

Some agreements in the framework of the ASEAN Economic Community include AFAS covering services sector, ATIGA regulating goods sector and ACIA ruling investment sector.

AFAS 7 (ASEAN Framework Agreement in Services) is an agreement to advance liberalization of 65 sub fields of services through directed schedule in fields of Priority Integration of Services Sectors. The agreement has a goal of liberalizing the trade in services sectors to facilitate realization of AFTA by completely removing of tariffs constraint among member states. ASEAN hopes to boosts the fields of services and investment.

ATIGA (ASEAN Trade in Goods Agreement) is collection of regional agreement regulating goods trade including program of tariffs reduction and completely removal and non tariffs coming close to 2010, and revise of origin rule and implementation of trading facilitation agenda, like National Single Window. ATIGA is for forming market integration (single market) and production base characterized by free flow of goods. This agreement has legalized on November 20th 2007.

ATIGA proposes to minimize barriers and deepen relationship and network among member states, to reduce trade cost, to increase trade and investment and economic efficiency, to create wider market and greater business scale within broader economy of member states, and to create competitive investment area.

ACIA (ASEAN Comprehensive Investment Agreement) is a regional agreement arranging all about investment. As one step forward of AIA Agreement (ASEAN Investment Area) and ASEAN Agreement for the Promotion and Protection of Investment signed at Philippine on 15 December 1987. This pact approves some articles regulating internal investment of member states and with external side. Main purpose of ACIA, as stated in article 1 of the agreement is to establish opened and free investment regime in ASEAN in order to reach economic integration as final destination under AEC through progressive liberalization in investment regime.

China notes the growing importance of ASEAN in many areas, including this integration project. China Ambassador for ASEAN Xue Hanqian considers ASEAN to be strategic and is a potential region for advancing cooperation. Hanqian plans to visit all member states of ASEAN in close time, including Jakarta.

China is the sixth of ASEAN states dialogue partner appointing special envoy for ASEAN after USA, Australia, New Zealand, Japan and South Korea. Total trading of China with member states of ASEAN recently shows striking growth with the China ASEAN Free Trade Area (CAFTA). It is predicted that ASEAN will be the third biggest trading partner replacing Japan for China on 2010, after European Union and USA.

Some analysts however see the increasing integration as a hope for a more unified region to improve ASEAN’s bargaining position vis-a-vis China, whose rising economic might and concentrated soft-power diplomacy in the region has relied largely on bilateral rather than multilateral deals and pacts.

The Charter establishes ministerial-level councils to deliberate and resolve substantive matters and the stationing of a permanent representative from each member nation at ASEAN's secretariat in Jakarta, Indonesia to strengthen regional integration and move towards a more rules-based footing keeping in mind consensus-building.

Just as the AEC can form a bloc to manage the rise of China, it can also buffer against core blocs in Europe and North America which also have established coherent trade and investment blocs. The biggest fear amongst many policy-makers, not just within ASEAN, is the threat of global protectionism and to ward of nationalistic protectionism within ASEAN itself.

The charter's obligations put ASEAN on track to meet its stated goal of creating an ASEAN Economic Community (AEC) by 2015. The AEC goal is to promote ASEAN as one coherent market and manufacturing site that facilitates the free flow of goods, capital, services, investment and skilled labor between its members, which include an estimated population of 556 million people and a combined gross domestic product (GDP) of over US$1.17 trillion.

The core of the AEC is the ASEAN Free Trade Area (AFTA), a preferential tariff system aimed at promoting the free flow of goods within ASEAN. The free flow of investment and services, as well as the elimination of non-tariff barriers, are also included in the pact. ASEAN's six original and more economically developed members - Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand - have agreed to reduce tariffs on almost all intra-regional imports by 2010, with the grouping's other four nations - Cambodia, Laos, Myanmar and Vietnam - scheduled to do the same by 2015.

The administration of AFTA will be handled by individual ASEAN nation's customs and trade authorities. While ASEAN can monitor compliance, it has no ability to enforce it. The new charter will not establish a customs union or set penalties for members which do not meet agreed timelines for implementation.

Governments are free to pursue bilateral trade and investment deals independent of ASEAN. China's participation in more institutional frameworks for regional economic integration - such as ASEAN+3, which also includes Japan and South Korea, and the East Asia Summit, including China, Japan, South Korea, Australia, New Zealand, India and ASEAN - will over time only lead to greater economic and political interdependence between China and ASEAN nations.

China's use of bilateral aid, loans, investments and trade deals has become a part of Beijing's efforts to create a regional structure in Southeast Asia. Its wide range of assistance, including low-interest loans and trade and investment privileges ensures that Beijing is one of the largest bilateral donors to the region. It has also generated much goodwill throughout the region with symbolic assistance, in the form of financing Chinese-language schools, scholarships to study in China, study tours for government officials and frequent well-publicized diplomatic visits by ranking officials.

When the AEC takes force in 2010, the China-ASEAN Free Trade Agreement (CAFTA), first agreed to in 2004, will simultaneously come on-line. The free trade zone will encompass a population of some 1.8 billion people with an expected annual trade volume of US$1.2 trillion by 2010 - the third largest global trade group behind the European Union and the North American Free Trade Agreement.

CAFTA, China's first free trade agreement, will initially take effect for China and the initial six ASEAN nations in 2010 and expand to include all ASEAN members in 2015. Trade volume between China and ASEAN is already fast growing, up from US$105.9 billion in 2004 to US$202.5 billion in 2007. In the first nine months of this year, trade reached US$180.4 billion - a 23% year on year increase that made China the grouping's fourth largest trade partner. Those trade ties will improve when the various road, rail, water and pipeline projects designed to link ASEAN to China are completed.

A US Congressional Research Service (CRS) report from January 2008 noted that China's trade with ASEAN had risen rapidly and was expected to exceed that of the US in 2007. China's exports to ASEAN have risen from $12.7 billion in 1997 to $71.3 billion in 2006, the CRS report noted.

Meanwhile, China's imports from ASEAN have also risen even more sharply, up from US$12.4 billion in 1997 to US$89.538 in 2006. ASEAN is the only region in the world where China runs a trade deficit rather than surplus. These trends are only expected to intensify when trade ties are further promoted through the CAFTA. The CRS report noted that "as ASEAN economies become more dependent upon and integrated with China, its influence through 'soft power' is also expected to grow".

Sources:

McCartan, Brian, "ASEAN tightens up to ride China's rise" dated 17 December 2008 in the Asia Times website [downloaded on 21 Feb 2009], avialable athttp://www.atimes.com/atimes/Southeast_Asia/JL17Ae01.html

The Institute for Global Justice (IGJ), "OPINION Signing of ASEAN Charter: Integration or Disintegration?" dated January 2009, ASEAN-watch Volume I, Number 1 in the Southeast Asia Regional Initiatives for Community Empowerment website [downloaded on 20 Feb 2009], available athttp://www.searice.org.ph/index.php?option=com_content&view=article&id=8...







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