China and ASEAN Become Free Trade Block

China seeks to increase trade and investment with its Southeast Asian neighbors.

The Bund of Shanghai, China, May 1, 2009
The Bund of Shanghai, China, May 1, 2009 (Flickr/IceNineJon)

A free-trade agreement between China and the ten member states of the Association of Southeast Asian Nations (ASEAN) has come into effect last January 1, liberalizing trade and investment in an economic zone that is home to almost two billion people.

After the European Union and NAFTA, this new free-trade area is the third largest in the world and perhaps the most significant today for many of the countries involved, China foremost among them, are carrying the rest of the industrialized world out of the economic recession that has plagued it throughout the past year or so.

From this year onward, continental East Asia will maintain zero tariffs for 90 percent of the agreed products while China removes so much as 6,682 import duties, fastening its march toward free-market capitalism. There is fear that considering China’s growing political predominance in the region and the similarity between ASEAN’s and China’s industrial structures, the Communist powerhouse will emergence evermore hegemonous. As we opined before though, China doesn’t seek a confrontation. Its expanding influence in the Pacific is economic before anything else. So far it has repeatedly shown itself reluctant to take on a role of political leadership, be it in regard to the war in Afghanistan or the saber rattling of nearby North Korea.

What’s more, the free-trade agreement favors both parties. China gains access to natural resources and markets, pestering Japan a bit in the process that has traditionally maintained strong ties with the NICs of East Asia. The ASEAN states on the other hand may export more agricultural products to China while getting their hands on cheap consumer goods from their northern neighbor at reduced costs.

The integration is not complete yet. There are still some tariffs and the Chinese continue to throw around red tape at times to protect their market. In the future, there will be more cooperation in infrastructure, agriculture and energy and in all likelihood, an increase in cultural exchanges from which especially the more closed countries as Cambodia and Vietnam stand to benefit.

While China and ASEAN are already each other’s fourth largest trading partners, having nearly doubled their trade volumes between 2004 and 2007, the free-trade agreement promises to bring even more commerce and investment. Indeed, ASEAN expects that exports to China will grow by an additional 48% while China’s exports to ASEAN are anticipated to increase by so much as 55 percent. All in all, a healthy show of the market at work.

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