Date post: | 09-Apr-2018 |
Category: |
Documents |
Upload: | ben-kargbo |
View: | 221 times |
Download: | 0 times |
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 1/42
CHONQING UNIVERSITY IMBA
China-ASEAN Free Trade Agreement: Impact
on Regional EconomicDevelopment
SIMON, BENEDICT & ANDY
11/12/2010
[
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 2/42
Table of Content
1.0 Introduction[Benedict]...................................................................................................................32.0 Macroeconomic Environment .......................................................................................................6
2.1 ASEAN [Andy].....................................................................................................................62.2 CHINA [Simon]..................................................................................................................11
3.0 Free Trade Agreement[Benedict].................................................................................................133.2 Trade in Goods [Simon]......................................................................................................213.3 Trade in Services [Ben].......................................................................................................223.4 Foreign Direct Investment [Andy]......................................................................................24
Trade in investment between China and ASEAN...............................................................................244.0 Impact on Region.........................................................................................................................26
4.1 Trade in Goods [Simon]......................................................................................................264.2 Trade in Services [Ben].......................................................................................................304.3 Foreign Direct Investment [Andy]......................................................................................37
5.0 Conclusion[Andy]........................................................................................................................41
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 3/42
1.0 Introduction[Benedict]
The ASEAN and China agreed to forge an agreement with one another, since they both recognized that a
free trade agreement (FTA) is the best means to achieve further growth and development in the region.
The FTA sets in place a mechanism that allows for strengthened cooperation between the parties,
paving the way for a more stable and stronger East Asia economy. Through the FTA, all parties have
agreed to work towards further minimizing barriers and deepen economic linkages among the parties,
increasing intra-regional trade and investment, increasing economic efficiency, creating a larger market
with greater opportunities and larger economies of scale for business, and enhancing the attractiveness
of the Parties to capital and talent.
The ASEAN–China FTA reflects the active response of ASEAN and China to the challenges brought
about by intensifying regionalism in the global economy and the growing ties among them. It is a
significant development in East Asian integration. China, Brunei, Malaysia, Indonesia, Myanmar,
Singapore, and Thailand gave tariff cuts to each other on 7,455 kinds of commodities.. Under the
accord the Early Harvest Program was implemented on 1 January 2004; tariff negotiations for trade
in goods were completed in November 2004 and implemented in July 2005. Negotiations on a
dispute settlement mechanism were finalized in 2004 for implementation in 2005. In January 2007,
an Agreement on Trade in Services was signed and the Investment Agreement was signed in August
2009. As the world’s third largest FTA, CAFTA has a combined GDP of US$6.6 trillion, a market
of 1.9 billion people and a total trade of US$ 4.3 trillion.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 4/42
The move towards a FTA as a result of rational calculations by their political leaders of possible costs
and benefits of the pact. For ASEAN, an FTA with China is seen as a first important step in
integration with Northeast Asia in order to promote regional cooperation, strengthen its position,
and have its voice heard in the global arena. Mutual economic benefits and integration have been
possible because China has chosen to pursue development strategies characterized by peace and
partnership. Southeast Asian economies have recognized the rise of China and begun to collaborate
and adapt to the new order of changing competitive advantages, global financial flows, and trade
links.
Under the FTA, China will benefit from better access to ASEAN’s 410 million consumers, China
specifically hopes to strengthen its economic and political relations with ASEAN. With growing
institutionalized economic cooperation with ASEAN, China aims to develop a relationship of trust
and partnership with Southeast Asian countries, thus promoting China’s foreign policy objective of
ensuring peace in the region. Statistics from the ASEAN Secretariat showed that the China–ASEAN
trade volume has been growing at an average speed of 40 percent over the past three years, reaching
US$46.59 billion, or an increase of 25.96 percent three months after some 7,000-item tariff-
reduction program was carried out on July 20, 2005. It is estimated that the China–. China is
currently the third largest trading partner of ASEAN after Japan and EU, with a trade value of
US$192 billion in 2008. This makes up for 11% of ASEAN’s total trade with external parties. The
ACFTA is a market of 1.91 billion consumers that have a combined GDP of about US$5.83 trillion
(2008). It will become the third largest global trading region after the European Union and the
North American Free Trade Zone but in terms of consumer market size, the ACFTA is the biggest
FTA in the world
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 5/42
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 6/42
2.0 Macroeconomic Environment
2.1 ASEAN [Andy]
A] Definition:
Association of Southeast Asian Nations, commonly abbreviated ASEAN is a geo-political and
economic organization of 10 countries located in Southeast Asia, which was formed on 8 August
1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has
expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims include the
acceleration of economic growth, social progress, cultural development among its members, the
protection of the peace and stability of the region, and to provide opportunities for member
countries to discuss differences peacefully.
The motto of ASEAN is “One Vision, One Identity, One Community”.
A1] ASEAN Flag
The ASEAN flag represents a stable, peaceful, united and dynamic ASEAN. The colours of the flag --
blue, red, white and yellow -- represent the main colours of the flags of all the ASEAN countries.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 7/42
The blue represents peace and stability. Red depicts courage and dynamism. White shows purity and
yellow symbolizes prosperity.
The ten stalks of paddy represent the dream of ASEAN's Founding Fathers for an ASEAN comprising
all the ten countries in Southeast Asia bound together in friendship and solidarity. The circle
represents the unity of ASEAN.
A2] History evolution:
On 28 July 1995, Vietnam became the seventh member. Laos and Burma (Myanmar) joined two years
later in 23 July 1997. Cambodia was to have joined together with Laos and Myanmar, but was
deferred due to the country's internal political struggle. The country later joined on 30 April 1999,
following the stabilization of its government.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 8/42
B] Country profile
Countries The Economy The People The Environment The Infrastructure
Gross
domestic
product
at current
prices (US$million)
Growth
rate of
gross
domestic
product1
/at
constant
prices
Exchange
rate at
end of period
(national
currency=US$ 1)
Inflationrate (year-on-year growth of
CPI at endof period)
Total population
thousand Popula
tion
density
Unempl
oyment
rate
percent
Total
land area
km2
Forest
area
as
percentag
e of land area
CO2
emission
per
capita
metrictons
Road
length
km
Railways
km
Mobile
phones
per 1000
person
20092009
2009 2009 2009 2009 2009 2009 2009 2007 2009 2009 2009
Brunei 14,1467 -0.5 1.42 1.9 406.2 70 3.7 5,765 75.919.8/9
3,728 n.a 1,018.0
Cambodia 10,3682 0.1 4,221 5.3 14,957.8 83 0.8 181,0350.3/17
9n.a 178.8
Indonesia 546,5270 4.5 9,400 2.8 231,369.5 124 8.41,860,3
60
1.8/130
n.a
Lao PDR 5,579.2 7.6 8,506 8.5 5,922.1 25 1.3 236,8000.3/18
473,323 n.a. 2 52.3
Malaysia 193,1077 -1.7 3.42 1.1 28,306.7 86 3.6 330,252 55.87.3/58
9 0,127 8 78.6
Myanmar 24,9728 4.8 n.a. n.a. 59,534.3 88 4.0 676,5770.3/18
54 ,990 4.2
Philippines 161,3576 1.1 46.36 4.4 92,226.6 307 7.4 300,000 0.8/159 29,650 659.3
Singapore 182,7017 -1.3 1.40 -0.6 4,987.67,02
22.2 710
12.1/24
3,325 138 1,224.6
Thailand264,3228
-2.2 33.32 3.5 66,903.0 130 3.2 513,1204.1/96
9 8,053 4,043 804.2
Vietnam96,3171
5.2 17,941 6.9 86,024.6 260 1.3331,05
1
1.3/147
2,577 271.6
ASEAN 1.5 n.a. 590,638.3 133 n.a.4,435,6
70
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 9/42
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 10/42
ASEAN 4: Term use to call the four poorest countries in ASEAN, including: Brunei, Lao PDR,
Cambodia and Myanmar.
ASEAN 5: Thailand, Indonesia, Malaysia, Philippines and Singapore
ASEAN +3
In 1990, Malaysia proposed the creation of an East Asia Economic Caucus composing the then-
members of ASEAN as well as the People's Republic of China, Japan, and South Korea, with
the intention of counterbalancing the growing influence of the United States in the Asia-Pacific
Economic Cooperation (APEC) as well as in the Asian region as a whole. This proposal failed,
however, because of heavy opposition from the United States and Japan. Despite this failure,
member states continued to work for further integration and ASEAN Plus Three was created in
1997.
ASEAN+6
At the second East Asia Summit (EAS) held on 15 January 2007 in Cebu, the Leaders of ASEAN
and six other nations (China, India, Japan, S Korea, Australia and New Zealand, agreed to
launch a study on a Comprehensive Economic Partnership in East Asia (CEPEA) among EAS
participants. An underlying ambition was the establishment of an ASEAN + 6 FTA.
C] ASEAN AND CHINA
C1] Formation:
The first meeting of ASEAN-China Joint Cooperation Committee (ACJCC) was held in Beinjing in
26-28 February 1997.
On 5 November 2002, ASEAN and China signed a framework agreement in Phnom Penh that
commit them to establish ACFTA within ten years, beginning in 2010.
The ASEAN-China FTA – the world’s third largest free-trade area – came into effect on 1 January
2010. The FTA has a combined GDP of US$ 6.6 trillion, 1.9 billion people and total trade of
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 11/42
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 12/42
China share in world total imports or merchandise were 7.93%, of which agricultural products
accounted for 7.6%, fuels and mining products for 24.9 5, and manufactures for 67.1%.
Main origin of these were Japan 13.0%, European Union (27) 12.7%.
Commercial services trade only plays a minor role in exports as well as imports.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 13/42
3.0 Free Trade Agreement[Benedict]
3.1 FRAMEWORK AGREEMENT
The framework agreement was signed on 4 November 2002 in Phnom Penh by eleven heads of
government. This Agreement provided the legal basis for ASEAN and China to negotiate enabling
agreements that have led to the creation of the ASEAN-China Free Trade Area (ACFTA) on 1
January 2010. Desiring to minimise barriers and deepen economic linkages between the Parties;
lower costs; increase intra-regional trade and investment; increase economic efficiency; create a
larger market with greater opportunities and larger economies of scale for the businesses of the
Parties; and enhance the attractiveness of the Partiesto capital and talent. Recognizing the different
stages of economic development among ASEAN Member States and the need for flexibility, in
particular the need to facilitate the increasing participation of the newer ASEAN Member States in
the ASEAN-China economic co-operation and the expansion of their exports, including, inter alia,
through the strengthening of their domestic capacity, efficiency and competitiveness;
TIMELINE FOR THE CHINA-ASEAN FTA
Nov 2001 China and the 10-member Association of south East Asia Nations (ASEAN) begannegotiation to set up a free trade area.
Nov 2002 The “China- ASEAN Framework Agreement on Comprehensive EconomicCooperation” was signed
1 January 2004 Implementation of the Early Harvest Program (EHP); tariffs on certain products werereduced over a period of three years, and zero tariff no later than 1 January 2006. TheEHP covers over 130 agricultural and manufacturing products. In return ASEANcounties agree to give tariff concession to China under the Harmonized System (HS)for agricultural products, including meat, fish, fruits, vegetables, and milk
November 2004 The China-ASEAN Protocol on Enhanced Dispute Settlement Mechanism (DSM)and the Agreement on trade in goods was signed at the Tenth China-ASEAN summit.
July 2005 The Agreement on trade in Goods under Framework Agreement on ASEAN-Chinacomprehensive Economic cooperation became effective. The gradual lowering andremoval of the trade threshold encouraged new industrial structural adjustment andoffer new choices for market development of enterprises.
January 2007 Agreement on Trade in Services between China and ASEAN countries was signed.
August 2009 On August 15, 2009, the investment Agreement was signed, making the successfulcompletion of main CAFTA negotiations.
1 January 2010 Full-implementation of the CAFTA
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 14/42
B] OBJECTIVES OF THE AGREEMENT
Strengthen and enhance economic, trade and investment co-operation between the Parties;
• progressively liberalize and promote trade in goods and services as well as create a transparent,
liberal and facilitative investment regime
• explore new areas and develop appropriate measures for closer economic co-operation between the
Parties
• facilitate the more effective economic integration of the newer ASEAN Member States and bridge
the development gap among the Parties
C] Measures For Comprehensive Economic Co-operation
The Parties agree to negotiate expeditiously in order to establish an ASEAN-China FTA within 10
years, and to strengthen and enhance economic co-operation through the following:
progressive elimination of tariffs and non-tariff barriers in substantially all trade in goods;
a. Progressive liberalization of trade in services with substantial
b. Sectoral coverage; establishment of an open and competitive investment regime that
facilitates and promotes investment within the ASEAN-China FTA;
c. Provision of special and differential treatment and flexibility to the newer ASEAN Member
States;
d. Provision of flexibility to the Parties in the ASEAN-China FTA negotiations to address their
sensitive areas in the goods, services and investment sectors with such flexibility to be
negotiated and mutually agreed based on the principle of reciprocity and mutual benefits;
e. Establishment of effective trade and investment facilitation measures, including, but not
limited to, simplification of customs procedures and development of mutual recognition
arrangements;
f. Expansion of economic co-operation in areas as may be mutually agreed between the Parties
that will complement the deepening of trade and investment links between the Parties and
formulation of action plans and programmes in order to implement the agreed sectors/areas
of co-operation; and
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 15/42
g. Establishment of appropriate mechanisms for the purposes of effective implementation of
this Agreement.
D] COVERAGE OF THE AGREEMENT
TRADE IN GOODS
The Agreement on Trade in Goods, signed on 29 November 2004 in Vientiane, Lao PDR, is one of
the enabling Agreements under the 2002 Framework Agreement. It laid down the modality for tariff
reduction and elimination for tariff lines categorized in either the Normal Track or the Sensitive
Track: Normal Track: Tariffs on almost all tariff lines in this category have been eliminated by
ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) and
China as of 1 January 2010. The remaining few products in this category (i.e. not exceeding 150
tariff lines) will have tariffs eliminated not later than 1 January 2012, as part of the flexibility
provided in the modality. For Cambodia, Laos, Myanmar and Viet Nam, tariff elimination will have
to be completed by 1 January 2015, with flexibility to eliminate tariffs on products not exceeding
250 tariff lines by 1 January 2018. Sensitive Track: Products in this Track were further categorised
into the Sensitive (SL) and Highly Sensitive Lists and would be subject to tariff reduction within the
timeframes specified in the Agreement. Tariffs of products in the SL will have to be reduced first to
20% followed by a subsequent reduction to the 0-5% tariff band. For those in the HSL, tariffs will
have to be reduced to not more than 50%. The ACFTA does not allow exclusion of products. The
Rules of Origin for the ASEAN-China Free Trade Area follows a general rule of 40% regional value
content, with a limited number of products subject to some product specific rules.
The agreement on trade in goods was put in force by ASEAN on 1 July 2005 and was put in force
by China on 20 July 2005. As specified in the agreement, all parties are committed to reduce or
eliminate tariffs based on the following schedules:
1. Early Harvest Programme (EHP)
2. Normal Track
3. Sensitive Track
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 16/42
a. Sensitive List
b. Highly Sensitive List 9
TRADE IN SERVICES
The Agreement on Trade in Services between ASEAN Member States and China, signed in Cebu,
the Philippines on 14 January 2007, is the second enabling Agreement under the 2002 Framework
Agreement. It aims to liberalise and substantially eliminate discriminatory measures with respect to
trade in services among the Parties in various services sectors.
The main objective of the agreement is to expand trade in services in the region through improved
market access and national treatment for those specific sectors and subsectors where the Parties
made specific commitments.
The agreement takes into account that special and differential treatment shall be given to Cambodia,
Lao PDR, Myanmar, and Vietnam, which would allow these countries to open fewer sectors and
liberalize fewer transactions. The agreement paves the way for a more liberalized services sector for
both the ASEAN and China through provisions such as market access and national treatment. The
provision of market access entails that each party shall give services and service suppliers treatment
that is no less favorable than the terms, limitations, and conditions agreed upon by the Parties. On
the other hand, National Treatment means that each party shall give the services and service
suppliers of any other Party, treatment that is no less favorable than what the former accords its own
services and service suppliers. It is expected that the agreement would lead in the expansion and
growth of the four modes of trade in services, namely: cross-border supply, consumption abroad,
commercial presence, and movement of natural persons. Moreover, the agreement is expected to
spur higher levels of investments in the regions, especially in those sectors where commitments
have been made by each Party. The market access commitments of both China and the ASEAN are
contained in the first package of the agreement. Both ASEAN and China agreed to progressively
liberalize trade in services with substantial sectoral coverage. China committed to open up new
markets for the ASEAN countries in 26 branches of 5 service areas on the basis of original WTO
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 17/42
commitments, namely construction, environmental protection, transportation, sports and commerce.
China also made commitments in: Computer and Related Services, Real Estate Services, Other
Business Services, Construction and Related Engineering Services, Environmental Services,
Recreational, Cultural and Sporting Services, and Transport Services. On the other hand, the
ASEAN committed to open their markets to China in finance, telecommunication, education,
tourism, construction and medical treatment, among others. The Parties have also agreed that
successive rounds of market access negotiations be held to broaden the coverage of the Trade in
Services Agreement.
TRADE IN INVESTMENT
To promote and facilitate investment flows, ASEAN and China also signed an Investment
Agreement on 15 August 2009 in Bangkok, Thailand. The Agreement aims to create a favourable
environment for the investors and their investments from ASEAN and China.
AREAS OF COOPERATION
Aside from the agreements on the liberalization of goods, services, and investments, the Parties also
agreed to strengthen their cooperation in the areas of agriculture, information and communications
technology, human resources development, investment, and the development of the Mekong River
basin. It was also agreed that cooperation will be extended to other areas such as banking, finance,
tourism, industrial cooperation, transport, telecommunications, intellectual property rights, small
and medium enterprises (SMEs), environment, bio-technology, fishery, forestry, and forestry
products, mining, energy and sub-regional development. Activities to promote cooperation in the
above mentioned sectors shall include but not be limited to the following:
a. promotion and facilitation of trade in goods and services, and investment, such as:
i. standards and conformity assessment;
ii. technical barriers to trade/ non-tariff measures;
iii. customs cooperation
b. increasing the competitiveness of SMEs;
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 18/42
c. promotion of electronic commerce;
d. capacity building; and
e. technology transfer
MOST-FAVOURED NATION TREATMENT
According to the agreement China shall be accorded Most-Favoured Nation (MFN) Treatment
consistent with WTO rules and disciplines to all the non-WTO ASEAN Member States upon the
date of signature of this Agreement.
DISPUTE SETTLEMENT MECHANISM
Agreement on dispute settlement mechanism” has 18 items and regulates China and ASEAN how
to cope with trade dispute. The agreement, based on WTO dispute settlement mechanism and in line
with character of free trade area, made corresponding stipulation on many detail problems.
INSTITUTIONAL ARRANGEMENTS FOR THE NEGOTIATIONS
The ASEAN-China Trade Negotiation Committee (ASEAN-China TNC) that has been established
shall continue to carry out the programme of negotiations set out in the Agreement. The Parties may
establish other bodies as may be necessary to co-ordinate and implement any economic co-
operation activities undertaken pursuant to this Agreement. The ASEAN-China TNC and any
aforesaid bodies shall report regularly to the ASEAN Economic Ministers (AEM) and the Minister
of the Ministry of Foreign Trade and Economic Co-operation (MOFTEC) of China, through the
meetings of the ASEAN Senior Economic Officials (SEOM) and MOFTEC, on the progress and
outcome of its negotiations. The ASEAN Secretariat and MOFTEC shall jointly provide the
necessary
Secretariat support to the ASEAN-China TNC whenever and wherever negotiations are held.
AMENDMENTS
Amendments for the framework of the free trade area mostly concerned Vietnam. These
amendments were designed to assist Vietnam lower tariffs and put forth dates as guidelines.
TARIFFS
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 19/42
The free trade agreement reduced tariffs on 7,881 product categories, or 90 percent of imported
goods, to zero.This reduction took effect in China and the six original members of ASEAN: Brunei,
Indonesia, Malaysia, the Philippines, Singapore and Thailand. The remaining four countries will
follow suit in 2015. The average tariff rate on Chinese goods sold in ASEAN countries decreased
from 12.8 to 0.6 percent on 1 January 2010 pending implementation of the free trade area by the
remaining ASEAN members. Meanwhile, the average tariff rate on ASEAN goods sold in China
decreased from 9.8 to 0.1 percent. The six original ASEAN members also reduced tariffs on 99.11
percent of goods traded among them to zero.
D] MODALITY OF A CHINA-ASEAN FREETRADE AGREEMENT
In theory, under CAFTA, China and ASEAN will inevitably increase intraregional trade and
investment as trade barriers are lowered and costs reduced. With access to a larger and more
integrated market, businesses in the region become more competitive due to economies of scale. A
more integrated market also tends to attract more inward investments from developed countries,
creating employment and increasing economic welfare of member states. Trade between ASEAN
and China has indeed grown substantially since mid-1990s (Figure 1). Between 1995 and 2008,
bilateral trade increased more than tenfold, from about US$20 billion to US$223 billion, according
to Asian Development Bank. Growth has even been more rapid since 2001, when China joined
WTO and the two initiated talks to create CAFTA. Between 2001 and 2008, bilateral trade grew by
around 30% a year on average, relative to 15% for the years between 1995 and 2001. Consequently,
China became ASEAN’s third largest trading partner and ASEAN China’s fourth largest by 2008.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 20/42
In the meantime, ASEAN countries are also trading more with each other. Between 2001 and 2008,
intra-regional trade within ASEAN grew from US$164 billion to US$481 billion. Intra-ASEAN
export also rose slightly, from about 22% to 26% (Figure 2). Moreover, bilateral investment has
also grown considerably, although they constitute only a small portion of bilateral FDI. For
example, between 2002 and 2008, ASEAN’s FDI to China grew from US$3.3 million to US$5.5
million, accounting for only about 6% of China’s total utilized FDI
China’s role as an overseas investor to ASEAN is even smaller. By 2008,China's total accumulated
investments to ASEAN reached US$4.9 billion, accounting for only 2.6% of China’s total outward
investments.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 21/42
3.2 Trade in Goods [Simon]
Within the framework and with in the spirit of the “Agreement on Comprehensive Economic Co-
Operation Between the Association of Southeast Asian Nations and The People's Republic of
China” a supplemental agreement on trade in goods was established. This “Agreement on Trade in
Goods” was ratified by the ten member states of Asean and China at Vientiane, Lao PDR on
November 29, 2004.
The overall goal of this agreement was to establish the ASEAN-China Free Trade Area (ACFTA)
covering trade in goods by 2010 for ASEAN 6 and China and by 2015 for the newer Asean Member
States. Applied MFN (most favoured nation) tariff rates on listed tariff lines are to be gradually
reduced and where applicable, eliminated. Tariff lines are divided into two broad groups: Normal
track and sensitive track.
The agreement also prohibits the introduction of quatitiative retrictions and aims at reducing all
non-tariff barriers. WTO safeguard measures remain unharmed. ASEAN safeguard measures are
permitted if not concurrent with WTO safeguard measures and if the importation of a certain
product from a the partner country “threaten[s] to cause serious injury to the domestic industry of
the importing Party that produces like or directly competitive products”. Another exeption is made
if a serious imbalance of payments is threatening or actually causing external fincancial difficulties.
Besides exeptions based on security concerns, further ten general exception are granted on the
conditions that they are neither arbitrary nor unjustifiable discrimminatory.
Three Annexes further clarify the matters pertaining to the agreement. Annex 1 provides clear goals
in reduction of tariffs of products placed in the normal track. ASEAN 6 and China commit to cap
their tariff to maximum 20% in 2005, with subsequent gradual elimination by 2010. Viet Nam will
reduce its tariff from maximum 60% in 2005 to 0% in 2015. Cambodia, Lao PDR and Myanmar are
permitted slighly higher tariffs in the 2005 to 2010, but ultimately also reduce their tariffs to 0% by
2015.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 22/42
Annex 2 specifies the tariff lines places in the sensitive track. ASEAN 6 and China are awarded 400
tariff lines and a maximum of 10% of the total import value (2001 base). Cambodia, Lao PDR,
Myanmar and Viet Nam are each granted 500 tariff lines. Furthermore, tariff lines placed the
sensitive track can be further subdivided into Sensitive List and Highly Sensitive List.
ASEAN 6 + China Cambodia, Lao PDR,Myanmar
Viet Nam
2012 2018 2015 2020 2015 2020
Sensitive List 20% 0-5% 20% 0-5% n.a. 0-5%
Highly SensitiveList
50
Tariffs lines categorised into the Highly Sensitive List should be reduced to 50% by ASEAN 6 and
China by 2012, and by 2018 by the newer ASEAN Member States.
Annex 3 specifies the rules of origin. Not wholly produced or obtained product shall be deemed to
be originating in a country if at least 40% of its content originates from a Party country or if the
final manufacturing process is performed at the exporte's country and not more than 60% of the
FOB value are sourced from abroad.
3.3 Trade in Services [Ben]
ASEAN-China Agreement on Trade in Services
Overview
ASEAN and China reached another milestone at the ASEAN-China Summit in Cebu, the Philippines
as Leaders from the ten ASEAN Member Countries and China witnessed the signing of the Trade in
Services Agreement under the Framework Agreement on Comprehensive Economic Co-operation
between ASEAN and China (TIS Agreement) by the ASEAN Economic Ministers and China’s
Minister of Foreign Affairs. The TIS Agreement, which entered into force in July 2007, aims to
expand trade in services in the region. Under this Agreement, services and services
suppliers/providers in the region will enjoy improved market access and national treatment in
sectors/subsectors where commitments have been made.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 23/42
The market access commitments of the Parties to the TIS Agreement are contained in the first
package of specific schedule of commitments that are attached to the Agreement. The TIS Agreement
provides for liberalization on substantial coverage of sectors/subsectors especially in more than 60
additional subsectors committed by ASEAN Member Countries which are parties to the GATS/WTO.
In terms of level of ambition, the first package also shows higher market access commitments. It is
expected that trade in services in the region would expand and grow in scale through the four modes
of service delivery, namely: cross-border supply, consumption abroad, commercial presence, and
movement of natural persons.
Aside from increased trade, the TIS Agreement is also expected to bring about higher levels of
investments in the region, particularly in sectors where commitments have been made, namely:
(a) business services such as computer related services, real estate services, market research,
managementconsulting (b) construction and engineering related services(c) tourism and travel related
services(d) transport services; educational services(e) telecommunication services(f) health-related
and social services(g) recreational, cultural and sporting services(h) environmental services
and(i) energy services.
Successive rounds of market access negotiations to substantially improve the level of commitment
and broaden the subsector coverage of the TIS Agreement will be undertaken over the next one year
as the Agreement contains a built-in agenda for the conclusion of a second package of commitments
one year from its entry into force. The TIS Agreement is the second agreement concluded and signed
under the Framework Agreement for Comprehensive Economic Co-operation between ASEAN and
China, which was signed by the Leaders in November 2002. The Trade in Goods Agreement was
signed by the Economic Ministers from ASEAN Member Countries and China in November 2004.
Since the Framework Agreement on Comprehensive Economic Cooperation between China and
ASEAN (Association of Southeast Asian Nations) signed by China and ASEAN in November
2002, in which it is decided that the establishment of China-ASEAN Free Trade Area in 2012,
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 24/42
the negotiation of service trade has been going on several years. The Service Trade Agreement
was finally signed on January 14, 2007 and took effect on July 1, 2007. According to the
Agreement, on the basis of the commitment made to the WTO, China will make new
commitment in 26 sectors under construction, environment preservation, transportation, sports
and business. On the other hand, ASEAN makes commitment to open its markets in finance,
telecommunications, education, tourism, construction, and medicines, including the further
opening up of these markets and permission of solely-funded and equity joint ventures and
other cooperation for other party, relaxing in the limit of stake proportion in establishing
companies.
In general, there are differences between two parties in each other’s development basis, industrial
structure, and developing stage. These differences create the complementary trade in service
3.4 Foreign Direct Investment [Andy]
A] Definition:
Foreign direct investment (FDI) or foreign investment refers to long term participation by country
A into country B. It usually involves participation in management, joint-venture, transfer of
technology and expertise. There are two types of FDI: inward foreign direct investment and
outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of
foreign direct investment", which is the cumulative number for a given period. Direct investment
excludes investment through purchase of shares.
Between ASEAN and China the FDI is characterized by the ability of China to attract more foreign
domestic investment (FDI) than any of the countries in the ASEAN.
Trade in investment between China and ASEAN
To promote and facilitate investment flows, ASEAN and China also signed an Investment
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 25/42
Agreement on 15 August 2009 in Bangkok, Thailand. The Agreement aims to create a favourable
environment for the investors and their investments from ASEAN and China, and therefore
stipulates key protection elements that will provide fair and equitable treatment to investors, non-
discriminatory treatment on nationalisation or expropriation and compensation for losses. It has
provisions that allow transfers and repatriation of profits to be made freely and in freely usable
currency as well as a provision on investor-state dispute settlement that provides investors recourse
to arbitration.To promote investments and to create a liberal, facilitative, transparent and
competitive investment regime, the Parties agree to: enter into negotiations in order to progressively
liberalise the investment regime; strengthen co-operation in investment, facilitate investment and
improve transparency of investment rules and regulations; and provide for the protection of
investments.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 26/42
4.0 Impact on Region
4.1 Trade in Goods [Simon]
The impact of a free trade area could be analysed by using the customs union theory as a theoretical
framework, treating a free trade agreement as a variant of a customs union. Advantages accrue from
specialization and trade. Resources are allocated more efficiently and benefits are reaped
commonly. This positive effect is called trade creation. On the other hand, negative effects are also
possible. If a purchaser buys a more expensive product of another FTA member just because its
price is more competitive compared to a non-member due to a tariff advantage, trade diversion has
taken place at an higher economic cost.
Seven factors are generally considered in assessing the ecomic impact of a free trade agreement.
These factors all influence trade creation and diversion. In case where the former is higher than the
latter, an oveall economic gain has taken place. The factors are as follows:
size of market
pre-union level of tariffs among members and against nonmembers
pre-union level of intraregional and extra-regional trade
level of economic development
geographical proximity and transport infrastructure
substitutability between products of member states and products of nonmember states
complementarity in economic structures among member states
Trade between ASEAN, especially ASEAN 5, was picking up after the Asian Financial Crisis,
accelerating from around 2002 and was only slowed down by the 2009 Financial Crisis. So it seems
that the ACFTA did not markedly influence the already emerging trading pattern. It may be pointed
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 27/42
out that as explained above, the tariff reduction is spread over several years, numerous exeptions are
allowed and thus the final impact will only materialize with time. Moreover, trade between ASEAN
member countries and China accounts only for about 10% of their foreign trade.
China acts as the manufacturing base for the European and American consumer markets.
Intermediate goods like machinery, plastics, fats and oils, rubber and organic chemicals represent
the major part of China's imports from ASEAN. These imports are used as inputs for manufacturing
19951996
19971998
19992000
20012002
20032004
20052006
20072008
2009
0
20000000
40000000
60000000
80000000
100000000
120000000
140000000
160000000
180000000
200000000
Overall Exports
ASEAN to China
China to ASEAN
19951996
19971998
19992000
20012002
20032004
20052006
20072008
2009
0
10000000
20000000
30000000
40000000
50000000
60000000
Export of machinery and transport equipment
China to ASEAN
ASEAN to China
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 28/42
finished products to be exported again. This also explains the dip in trade between the two caused
by the 2009 financial crisis. China exporting less to Europe and America, needed less inputs from
ASEAN countries; subsequently ASEAN feeled the ripple effect in their trade.
Since the higher developed ASEAN member countries are at a similar economic stage as China, the
questions remains if there is really room for specialization or only cut-throat competition.
Interestingly the trade in machinery and transport equipment is not only the one with the highest
volume but also the one quickest expanding. This might indicate that there is still room for
specialization and trade creation also in other sectors over the long run.
Sectoral Impacts of ACFTA on Output (% Deviation from the Base)
Member
Country
Total
exports
Agricultural
products
Food
products
Extractive
industry
Manufacturing
Light Heavy Technology-
intensive
Indonesia -0.17 2.78 4.99 0.91 1.19 -2.12 2.10
Malaysia 3.68 -8.81 23.45 3.22 6.76 -1.03 0.28
Phillipines -0.33 5.04 0.46 1.89 -2.33 0.78 2.59
Singapore 9.07 0.27 58.59 13.60 3.07 2.11 2.24
Thailand 0.39 10.58 -3.24 21.11 -2.78 1.01 0.22
Vietnam 1.92 2.10 -1.86 3.28 4.30 -0.20 9.78
Cambodia,Laos,Myanmar
-0.04 -1.15 -3.25 1.41 1.50 -1.06 -2.44
China 0.08 -1.16 -1.22 -1.33 0.31 0.33 0.17
The country benefiting most seems to be Singapore, archieving output growth in all sectors,
especially food products and extractive industry. Vietnam seems set to reap benefits in the
technology-intesive sector and logging 2% overall growth in exports with ACFTA parties.
Malaysia's increase in total export output is mainly based on its food product and light
manufacturing sector. China's export output remains overall more or less unchanged.
Using a CGE model Park et al. (2009) simulated the impact of ACFTA on a structural level. So
structurally weaker, this simulation predicts consistent gains for Cambodia, Laos and Viet Nam in
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 29/42
all 7 analysed sectors, expecially in manufacturing they seem to have good prospects compared to
their other ASEAN peers, with Viet Nam being a n exeption to be noted. The gains for China seem
to be rather moderate. Philippines' and Indonesia's heavy manufacturing industry exports are
expected to decline whereas exports from Thailand, CLM and China are expected to rise. One
reason might be that countries depended on imports of raw materials are getting easier access to
these and thus their competitive disadvantage is lessened. The impact of China's agricultural sector
are two-faced. As explained by Zhang et al (2007), ACFTA will represent a boon for China's
Northeastern agricultural sector but a bane for its souther, tropical agricultural sectors.
Being freed from tariffs ASEAN extractive industry is poised to boom.
Sectoral Impacts of ACFTA on Exports (% Deviation from the Base - 2001)
Member
Country
Total
exports
Agricultural
products
Food
products
Extractive
industry
Manufacturing
Light Heavy Technology-
intensive
Indonesia 1.45 -7.71 20.14 0.54 0.03 -3.95 3.70
Malaysia 1.30 45.19 31.99 4.89 10.16 2.61 -0.72
Phillipines 2.83 64.81 -1.06 16.58 -3.77 -2.72 2.54Singapore 1.90 -0.77 90.34 15.65 1.84 0.84 1.19
Thailand 4.63 27.30 -10.78 60.05 -8.65 5.88 1.24
Vietnam 15.28 12.55 34.90 15.79 8.03 -2.95 36.97
Cambodia,Laos,Myanmar
10.46 11.70 31.29 9.84 10.21 7.10 28.56
China 3.44 -1.64 2.90 4.65 2.81 3.59 3.84
Besides these sector specific implications, overall ACFTA will help China and ASEAN to become
less dependend on Europe or America as export destinations in future. China is able to secure more
stable and easy access to natural resources in resource-rich countries within Asia and may also serve
the growing middle-class in ASEAN countries. ASEAN member countries get access to a hugh
market. The growing technological prowess of China puts pressure on ASEAN countries to upgrade
their machinery and production methods. Less developed ASEAN countries may benefit from a
migration of labour-intensive industries to them. As in the case of machinery a successful
specialization and trade creation may take place. This calls for integrated sourcing and production
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 30/42
networks.
4.2 Trade in Services [Ben]
1. The volume and structure of China’s Service Trade
China’s service trade has been developing rapidly. The total volume of service’s import and export
in 2007 is 25 times the size of that in 1990. The average annual increase rate is up by 18.4%, which
is two times over that of the world. While the international competitiveness in our service trade is
still lower than the developed countries and even some developing countries. From 1990 to 2007,
China’s service export volume as a share in its total export is keeping lower than 10%, which is
only half of the world’s average level. The total service’s import and export volume in 2007 is 250.9
million dollars, up by 30.88% sharply than previous year, but it is only account for 4% of the
world’s service import and export. Meanwhile China’s trade in service has been being in deficit for
a long time. In 2007, China’s services exports grew faster than imports. Deficit in services trade
shrank noticeably to 7.7 billion, down by 14.6%over the previous year, and 20.3% lower than the
largest deficit in 2004, the year with the largest trade deficit in services. All detail data is provided
in Table 1.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 31/42
As showed in Table 2, the overall competitiveness of China’s service trade is weak. Its TC index is
keeping negative, which indicates China’s service trade is of comparative disadvantage and not
being improved for a long time. During the same period, the TC index of EU and the USA is
0.8 and 0.12 respectively. As for sector, China’s service import and export is unbalance. The TC
index of only both travel and other commercial service is keeping in positive, with certain
competitiveness. While the transportation is being in negative because of its turning to capital
and technological-intensive service manner, in which China is weak comparatively. The TC
index of construction has been getting better in recent five years as a result of rich labor
resource and lower labor cost. For most part of time, the index of communication, computer
and information is in positive by taking advantage of national monopoly. As for the index of
high value-added service sectors, such as insurance, finance, royalties and license fees,
consulting, film, audiovisual, and so on, is negative, which shows that the competitiveness of
China’s capital and technological-intensive service trade is comparatively lower even though it
is improving unceasingly.
2. Comparison of Advantage in Service Trade between China and ASEAN
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 32/42
China’s service trade with ASEAN has been developing rapidly of late years. ASEAN has become
the key export market of China’s investment, contract engineering, labor service collaboration.
Meanwhile the investment from ASEAN in marine and air transportation, financial service,
construction and engineering service is also an important composed part of China’s service
import. The actual economic benefit gained from the service trade has become the important
basis and powerful motive force for the development of relations between China and ASEAN.
Table 3
Country Sector with advantage Sector needed to be developed
China Construction, marine transportation,travel,computer and information
Financial service, insurance,Consulting
Brunei Travel and related service, financialservice,cooperative exploitation of oil andnatural gas
Commercial service, transportation
Cambodia Travel and relating service,construction andrelated engineering
Commercial service,telecommunication service,environment and public facility
Indonesia Transportation, communication, post andcable service, consulting
Financial service, insurance, travel
Laos Electricity, travel and related service Transportation, communication
Malaysia Travel and related service, financial
service
Commercial service
Myanmar Energy exploitation, construction,mining
Energy and human resourcesexploitation, travel, transportationcommunication
The Philippines Information and related service, paging hub,commercial purchasing service
Travel, banking and security
SingaporeAir transportation, financial service,hotel,exhibition service
Gambling, construction
ThailandTravel, environment and financialservice
Construction and related service
Vietnam
Labor service Education, commercial service,
technological service, financialservice
The above comparison in table 3 indicates that China and the 10 nations of ASEAN have their own
advantages in terms of sector structure, which result in the great complementary between two
parties. The Chinese businesses should attach great importance to the ASEAN market and
choices offered by the opening up of service trade market at both sides and catch the business
opportunities.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 33/42
3.0 Countermeasures for enhancing cooperation in service trade between China and ASEAN
To sum up, there is competition in the service sector basis, resources, development of service trade
and outsourcing between China and ASEAN, but their level of economic development and
sector structure are multistoried and ladder shaped, which create the diversity and
complementary in aspect of both parties’ comparative advantages. So the bilateral cooperation
in service trade should endeavor to enhance collaboration in their complementary fields, to
achieve mutual –development and win-win in their competitive fields.
3.1 To keep on strengthening the competitiveness in traditional service sector
The distinctive natural and cultural sceneries of both China and ASEAN serve as plentiful travel
resources and are also the basis for forming and developing the competitiveness of each other’s
travel service. As travel accounts for big share in both China and ASEAN’s service trade
export, and as developing countries, both have had gained their own competitiveness in this
traditional travel service at the same time, there should be more competition than cooperation
in travel service field between China and ASEAN. Under the pressure from ASEAN after the
further opening of travel market, China should be devoted to develop the distinguish and
diversity travel services, such as green travel, cultural travel, submarine travel, ecological
travel, internet travel and other creative travel projects. The knowledge-based economy is
changing the traditional competitive manner from resources and passenger flow direction to
technology and information. The competition in future travel service will focus on creating
travel resources and particular travel services according to the passengers’ desire, interest,
economic situation and required time instead of selling certain scenery point or travel rout
only. Meanwhile, China should enlarge the opening of travel and use foreign capital to adjust
the investment structure of its service. For example, we can transform the service projects of
our old and famous national hotel by using foreign capital, outsource human resources training
of our travel agents, the information system‘s developing and managing, landscape hotel and
other low-value-added links in order to advance the management level of China’s travel agents.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 34/42
3.2 To consolidate the cooperation in transportation and finance
In the field of transportation, the half of the import and export between China and ASEAN is
carried by marine transportation. The volume of transportation trade from China to ASEAN has
increased by 22.7% within recent five year, and the Mekong River transportation is further
developed at the same time. The increasing transportation of cargo and passengers between
China and ASEAN build the solid basis for developing the transportation service of both side.
So different from travel, there are more cooperation than competition in transportation service
between China and ASEAN. China should reinforce the construction of logistic infrastructural
facilities in order to speed up the development of modern transportation and logistics,
meanwhile, take advantage of the huge population of China-ASEAN Free Trade Area to
develop the scale economy. Finance is usually regarded as “the first driving force” to the
development of regional economy. For the purpose of larger scope, wider field and higher lever
cooperation, both sides should enhance their collaboration in the field of finance in order to
make finance play its function of configuration guidance and market regulation. For middle and
long term, the cooperation between China and ASEAN should focus on financial supervision
and currency in order to avoid the fluctuation and financial crises caused by hot money, and the
illegal activities, such as arbitrage of exchange, money laundering, swindle, and so on, which
will damage the financial system and solid economy greatly.
3.3 To improve the level of high-technology service
Technology service is the core of world’s service trade. Computer and information services are of
high increasing potential as high-value-added sectors. Except Singapore, the competitiveness in
computer and information service of China and other ASEAN members is almost the same and
needs to be improved further. Both as being developing countries should prioritize the
development of these sectors. While the volume and risks of investment in these sectors are
huge, so it is necessary for the government to provide guidance and subsidies in their R&D
and production International Journal of Economics and Finance capability. On the other hand,
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 35/42
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 36/42
complex and challenging question. This is due to the characteristics of services as well as to
the numerous ways in which services can be traded. As Findlay, Stephenson and Prieto state,
“Service activities are intangible and non-storable on the whole, require the proximity of
consumers and producers in their trade, demonstrate both capital and labour mobility associated
with their forms of trade, and show a high prevalence of regulatory intervention to counteract
market failure and achieve non-economic social objectives” (Findlay, C., Stephenson, S., &
F.J. Prieto, p.3 2002). It follows that barriers to trade in services involve regulations, laws,
decrees and administrative practices - phenomena which are much less transparent than tariffs
and quotas that affect trade in goods. In the case of goods, tariff levels before and after the
formation of a preferential trading arrangement can be compared. In the case of services it is
the degree of application of the national treatment principle, or the extent to which
discriminatory treatment has been removed among members that must be compared with the
type of treatment that is accorded service providers from non-member countries. Accordingly,
liberalisation of services trade must be evaluated quite differently from that of trade in goods.
The lack of data on services trade for ASEAN
Secondly, the lack of services trade data in ASEAN prohibited us from being able to form any
meaningful picture of the degree and scope of intra and extra-ASEAN trade flows. The best
available data source for services trade is the WTO’s statistical database on services trade.
However, this does not disaggregate services trade data enough to enable us to either ascertain
trade data by the 7 services sectors of relevance, or by flows of services data between ASEAN
countries and China. Nevertheless, to provide contextual information for what is about to
follow, we present in Table 3 below, the best available data for services trade in ASEAN. This
breaks down services trade data into 3 sub-sectors, these being ‘transportation’, ‘travel’ and
‘other
commercial services’. Given the limitations with trade in services data, in order to understand the
importance of services trade to ASEAN and further develop the background against which
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 37/42
progress in AFAS can be assessed, Figure 1, below presents data for services as a percentage of
GDP.
Source: ASEAN Statistical Handbook 2004 (taken from materials provided on ASEAN Forum on
trade in service.
4.3 Foreign Direct Investment [Andy]
A] Impact in ASEAN
A1) Positive impact:
Sarah Y. TONG & Catherine CHONG Siew Keng in “CHINA-ASEAN FREE TRADE AREA IN
2010:A REGIONAL PERSPECTIVE” said that on the whole, inward investment from elsewhere to
CAFTA shall rise, with a more harmonized region. According to the United Nations’ FDI statistic s,
after China’s CAFTA initiation in early 2001, total FDI to ASEAN doubled from about US$20
billion in 2001 to US$40 billion in 2005, and increasing further to US$70 billion in 2007. ASEAN’s
share in total FDI to developing countries also increased from 9.4% in 2001 to 13.1% in 2007.
Correspondingly, FDI to China has also risen significantly. Between 2000 and 2003, the share of
FDI to China and ASEAN in total FDI to developing countries rose sharply from 25% to 43%. It
had since dropped gradually to 27% in 2008, although the total amount continued to increase.
The ACFTA attract FDI from others countries like US, Japan, EU included China and Non-acfta
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 38/42
areas and make ASEANs countries more competitive with Asia’s next giant countries.
Top ten sources of foreign direct investment inflow to ASEAN
Country/region1/ Value Share to total inflow
2007 2008 2009 2007-2009 2007 2008 2009 2007-2009
European
Union (EU)-25
17,765.5 9,520.1 7,297.2 34,582.8 23.9 19.2 18.4 21.1
ASEAN 9,682.0 10,461.5 4,428.9 24,572.4 13.0 21.1 11.2 15.0
Japan 8,828.7 4,657.8 5,308.4 18,794.9 11.9 9.4 13.4 11.5
USA 8,067.6 5,132.6 3,357.7 16,557.9 10.8 10.4 8.5 10.1
Cayman Island 1,595.4 4,605.4 3,015.2 9,216.0 2.1 9.3 7.6 5.6
Republic of
Korea
2,715.5 1,583.5 1,421.8 5,720.8 3.7 3.2 3.6 3.5
China 1,684.3 2,109.5 1,509.5 5,303.3 2.3 4.3 3.8 3.2
Hong Kong 1,495.6 1,447.3 1,582.1 4,525.0 2.0 2.9 4.0 2.8
Bermuda 3,259.2 58.6 1,164.4 4,482.2 4.4 0.1 2.9 2.7
Taiwan (ROC)784.8 1,745.1 687.9 3,217.8 1.1 3.5 1.7 2.0
Total top ten
sources
55,878.6 41,321.6 29,773.1 126,973.3 75.1 83.5 75.1 77.7
Others2/ 18,516.7 8,178.3 9,849.9 36,544.8 24.9 16.5 24.9 22.3
Total FDI inflow
to ASEAN
74,395.3 49,499.8 39,623.0 163,518.1 100.0 100.0 100.0 100.0
Source: ASEAN Foreign Direct Investment Statistics Database (compiled/computed from data submission, publications
and/or websites of ASEAN Member States' central banks, national statistics offices, and relevant government agencies
through the ASEAN Working Group on Foreign Direct Investment Statistics
ASEAN nations are attracted by the opportunities brought about by China’s economic expansion
and trade liberalization.
Benefit for poorer ASEAN-4 members. The liberalization policies of China stimulate a boost for
ASEAN-4 in term of FDI.
The FTA is like “balance of power” between their own integration (AFTA) and a ploy to engage
larger trading partners, such as Japan, the United States, and the EU.
The FDI from China and intra-industry trade within the ACFTA will create important linkages and
are expected to improve the production-chain with ASEAN.
Important investment in short-run which create displacements in labour-intensive industries such as
textiles, garments, footwear, toys manufacturing, foodstuff processing, and large capital-intensive
production such as steel manufacturing and machinery and equipment serving the domestic markets
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 39/42
within ASEAN.
Chinese companies invest in Southeast Asia, this somewhat mitigates China’s competition for FDI
with ASEAN.
B2) Negative impact:
Loss of market share to China in most of the countries in South East Asia because of the
inexhaustible unskilled labor and huge amounts of FDI, China may pose an especial challenge to
the ASEAN-4 in their home or third-country markets especially in those countries that have similar
goods and markets globally.
Some of the FDI going into ASEAN now may end up going into China.
Ability of China to pull more (FDI) than any of the countries in ASEAN. China attracted $92.4
billion worth of foreign direct investment in 2008, a 23.6 percent increase from 2007 while ASEAN
countries attracted $60.17 billion in 2008, a decrease from $69.48 billion in 2007 due to the global
economic crisis.
C] Impact in China
C1) Positive impact:
Greater market access in resource- and agro-based products and some manufactured goods for
ASEAN’s poorer four newer members.
Expansion of domestic market and Chinese companies become more powerful by investing in
ASEAN countries, especially in the poorest members of ASEAN.
Low cost of raw materials for Chinese company which stimulate investment.
C2) Negative impact:
The FDI that is currently going into China for China’s intrinsic value is unlikely to be distracted by
an FTA with ASEAN.
It is an issue for the others giant countries like Japan, US and EU to conquest Chinese market by
investing in ASEAN’s countries.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 40/42
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 41/42
5.0 Conclusion[Andy]
The establishment of an FTA between ASEAN and China created an economic region with 1.7
billion consumers, a regional GDP of about US $ 2 trillion and total trade estimated at US $
1.23 trillion. This makes it the biggest FTA in the world in terms of population size. The
lowering of trade and investment barriers will result in an enlarged integrated market, promote
specialization and trade according to comparative advantage, and enable exploitation of scale
economies, contributing to lower costs and increased economic efficiency. Trade creation
occurs when domestic production is replaced by lower cost imports from an FTA member,
boosting regional income and welfare. In addition, there may also be welfare gains or losses
due to terms of trade changes. ACFTA will also attract more investments, both from regional
investors as well as investors from non-ACFTA countries.
8/8/2019 CAFTA Impact on Regional Simon, Benedict and Andy
http://slidepdf.com/reader/full/cafta-impact-on-regional-simon-benedict-and-andy 42/42
References The Logic of China-ASEAN Free Trade Agreement: Economic Statecraft of “Peaceful Rise”Vincent Wei-
cheng Wang Department of Political Science University of Richmond
The Jakarta post-“opinion”
www.eastasiaforum.org
the ASEAN web
CHINA-ASEAN FREE TRADE AREA IN 2010: A REGIONAL PERSPECTIVE Sarah Y. TONG & CatherineCHONG Siew Keng
EAI Background Brief No. 519
UNCTAD A Comparative Analysis of Trade and Investment Regimes of China and ASEAN. Tongson, JoseLelis. October 2002.
ASEAN-China Relations: Realities and Prospects. Edited by Saw Swee-Hock, Sheng Lijun, and Chin KinWah. Singapore. Institute of Southeast Asian Studies. 2005.
ASEAN Secretary General Ong Keng Yong at the Commemorative Symposium to mark the 15th Anniversaryof China’s Dialogue with ASEAN organized by the East Asia Institute, Singapore, December 08, 2006
ASEAN-China Free Trade Area: Chia Siow Yueh. Singapore Institute of International Affairs. Paper for presentation at the AEP Conference. Hong Kong.12-13 April 2004
Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the People's Republic of China
November 2002. Jakarta: ASEAN Secretariat (ASEAN Secretariat website)
http://www.aseansec.org/newdata/asean_chi.pdf
China-Asean Free Trade Area In 2010: A Regional Perspective.Sarah Y. Tong & Catherine Chong Siew Ken
Briefing Paper on the Establishment of the ASEAN-China Free Trade Agreement (FTA)
http://www.tariffcommission.gov.ph/briefing_paper_fta.htm
Asean China free trade agreement- a premier
http://www.philexport.ph/policy/aseanchinaprimer.pdf
Shi, Zhiyu. (2007). Analysis on the Trade Deficit between China and ASEAN, Economic Problems Explore,
http://www.mofcom.gov.cn.
Xu, Ningning. (2007). Review on the Fifteen Years’ Economic and Business Cooperation between China and
ASEAN, Chinese Forum
Chunmei Yang College of Economics, Tianjin Polytechnic University (2009) Analysis on the Service Trade
between China and ASEA
Dr Vo Tri Thanh and Mr Paul Bartlett (2006) Ten Years of ASEAN Framework Agreement on Services
(AFAS): An Assessment
Asean Secretariat website: http://www.aseansec.org/19294.ht
Wharton Business School. "The China-ASEAN Free Trade Agreement: Who's Happy, Who's Not."
Qiu, Huanguang, Yang, Jun, and Huang, Jikun. "Impact of China-ASEAN Free Trade Area on China's
International Agricultural Trade and Its Regional Development." China & World Economy 15.5 (2007): 77-90.
Donghyun Park, Innwon park, Gemma Ester B Estrada. "Prospects for ASEAN-China Free Trade Area: A
Qualitative and Quantitative Analysis." China & World Economy 17.4 (2009): 104-120.
"China-ASEAN FTA: Winners and Losers." China & North East Asia 2010: 2-2.