China and Southeast Asia Create Free-Trade Zone

Telegraph UK (Link) - Malcolm Moore (December 30, 2009)

In another sign of Asia�s ascendancy, and of its growing economic and political union, duties will be dropped on everything from steel to rubber and shoes to electronics.

China hopes that the zone will quickly rival the European Economic Area and the North American Free Trade Area and provide new outlets for its goods in the face of Western protectionism.

Duties will be scrapped on 90pc of goods traded across China, Indonesia, Malaysia, Singapore, Thailand, Brunei and the Philippines. Over the next five years, tariffs will also be removed on trade in Cambodia, Laos, Vietnam and Burma.

�Since the financial crisis, demand for goods has declined from Europe and the United States,� said Tang Min, an economist at the China Development Research Foundation. �If the zone grows to include Japan, Korea or even Australia, it could be a similar size to the North American market,� he added.

Although China�s trade with South East Asia is far smaller than with the West, it is growing rapidly. Between 2003 and 2008, it more than tripled from $59.6bn (�37.5bn) to $192.5bn.

China has already overtaken the US to become ASEAN�s third largest trading partner, and will leap past Japan and the EU within the first few years of the new trade bloc, said Sundram Pushpanathan, the Deputy Secretary-General for the ASEAN Economic Community. �In 2010 we are sending a strong signal that ASEAN is open,� he added.

�On the Chinese side, the sectors that will benefit the most are light manufacturing, such as electrical and electronic goods, clothes, footwear, porcelain and so on. For South East Asian countries, they will sell more agricultural products and natural resources,� predicted Zuo Liancun, an economics professor at Guangdong University of Foreign Studies.

He added that the economic union would also �reduce political disputes.� While political union in Asia is still a distant goal, several countries in the region, including Japan and Korea, have raised the idea of closer ties to offset the power of the West.

The new free trade zone has taken eight years to put together. However, some smaller countries, such as Indonesia and the Philippines have protested at the eleventh hour that they fear being swamped by a wave of Chinese goods.

Eddy Widjanarko, the president of the Indonesian Footwear Association said that Chinese shoes would take 20pc of the market immediately, costing 40,000 jobs.

�In the short term there will be some adjustments that some countries have to make. Some local companies will lose their domestic market share but ultimately consumers will benefit,� said Mr Pushpanathan.