Prospects 2010: Almost Zero Tariff for China-ASEAN

The 1st of January 2010 is a significant date. On this day, ASEAN businessmen will have virtually unfettered access to almost two billion consumers from China. This historically signals the opening of the world's largest free trade area.

The Asean-China FTA, which has been in the pipeline since 2002, is set to be worth about as much as the European Union or the North American Free Trade Agreement (Nafta), and will be bigger than both combined in terms of population.

Under the new accord, China and the six founding Asean countries — Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand — are to remove tariffs on 90 per cent of imported goods, covering 7,000 product categories.

The other four Asean members, including Vietnam and Cambodia, will follow suit in 2015.

Officials hope the agreement will accelerate inter-regional trade — already expanding at 20 per cent a year — and reduce Asia's reliance on developed economies weakened by the economic downturn.

Trade volume in the China-Asean free trade zone, which has a combined gross domestic product of more than US$2 trillion (RM6.85 trillion), will “jump” by an annual rate of 40 per cent to 50 per cent, according to Thai embassy official Warawudh Chuwiruch, who was speaking at a press conference in Beijing two days ago.

Over the past 10 years, Asean-China trade has rocketed from US$39.5 billion in 2000 to US$192.5 billion last year, according to news agency AFP.

And China recently leapfrogged the United States to become Asean's third largest trading partner.

It is poised to overtake Japan and the EU to emerge as the single largest trading partner within the first few years of the FTA, Pushpanathan Sundram, Asean's deputy secretary-general, told AFP.

Economist David Cohen, of Action Economics, said that as China becomes an increasingly important export market for the world, the FTA will be a welcome additional boost for Singapore.

“I don't know how much material difference it is going to make, but the important thing is that China's growth is on track. And, whatever help the FTA can give to Asean economies will be beneficial,” he said.

Some Singapore economists, however, do not expect the FTA to have an immediate impact on the Republic's economy.

“In the initial stage, I think the political implication of the FTA overwhelms the economic significance,' said Nanyang Technological University economist Tan Khee Giap.

“If you talk about Singapore, even without this Asean-China FTA, we are already doing very well: We have been exporting more than we import from China over the last three or four years.”

From next year, the average tariff China charges on Asean goods will be cut from 9.8 per cent to 0.1 per cent, according to AFP.

Average tariffs imposed on Chinese goods by Asean states will fall from 12.8 per cent to 0.6 per cent.

So, are we going to have a upward shift beginning in 2010 that can see Malaysia expediting its return to better times before 2007?

Or it only on paper?