China: Free trade ahead

China Daily | 2008-06-23

Free trade ahead


It is not only the first in China, but also the world’s largest by population.

It is China-ASEAN (Association of Southeast Asian Nations) FTA (free trade area), which debuted in 2002 and planned for completion in 2010.

It possesses a population of 1.8 billion, and is also the third largest global trade group behind the European Union and North American Free Trade Area (NAFTA). The China-ASEAN FTA’s annual trade volume is expected to reach $1.2 trillion by 2010.

From a new concept originally conceived before 2002 to the national economic strategy recognized by the Chinese government in 2007, the FTA’s rapid evolution in merely six years has amazed many.

FTA (also termed free trade zone) is an organization of nations or regions which jointly reach a series of economic agreements, including eliminating or reducing tariff rates, improving intellectual property regulations, easing investment rules, and more.

The concept was originally created by the United States in 1980, which, in August 1992, together with Canada and Mexico, agreed to build NAFTA, the world’s first FTA between developed nations and developing nations.

In the last decade more nations have jumped on the FTA wave. By November 2007, 197 regional trade projects have gone through under the World Trade Organization (WTO). The majority were FTAs, 80 percent of which were formed over the past 10 years.

However the FTA concept had been given short shrift, especially in East Asia, including China, South Korea and Japan, where no FTA agreement was signed before 2000.

But China witnessed a turning point at exactly that time.

During the 1990s, as part of its efforts to participate in the global economy, China began to contemplate developing a regional economic group at the same time as it was applying for entry in the WTO. In November 2000, the then Premier Zhu Rongji proposed establishing the China-ASEAN FTA at the Fourth China-ASEAN Leadership Forum held in Singapore.

Zhu’s proposal received a warm welcome and came on the heels of the commitment of "a closer economic partnership" made by the trade ministers of the ASEAN, Australia and New Zealand in October the same year.

In the aftermath of the 1997 Asian financial crisis, the ASEAN expected that a "closer partnership" could pave a way for a FTA with the two economies in a bid to strengthen its economic power to fend off possible threats from China.

The ASEAN had reasons to worry. China was at a critical juncture with the WTO, and it had been rumored that such a move would cause an investment exit from the ASEAN to China as well as a huge influx of exports from China into the ASEAN.

"China is expected to clear up the concerns through its proposal, and we also expected the ASEAN to co-share the benefits that the reform and opening up policy and the WTO membership could bring in," Long Yongtu, general secretary of the Boao Forum, was quoted by Caijing magazine as saying.

The Chinese government appointed the-then Ministry of Foreign Trade and Economic Cooperation to conduct feasibility study that began in late 2000. The conclusion released in October 2001 was that a China-ASEAN FTA was beneficial to all parties concerned and that the ASEAN and China would both see a rise in annual exports. Following rounds of talks, the two sides wrapped up the China-ASEAN commodity trade agreement in November 2004 in Laos.

The agreement is a milestone in the history of economic cooperation between China and the ASEAN, as it is the first FTA agreement for both.

Though the formation of the FTA seems to have been relatively quick and easy, there were behind-the-scenes stories that showed it wasn’t always a smooth process.

Due to the vastly different economic levels of some of the 10 ASEAN nations, China often found the going difficult during the negotiations.

Long attributed the FTA’s ultimate success to China’s willingness to give in, even on sensitive issues such as agriculture.

"This is an approach suggested by the-then Premier Zhu who said China could not expect fair play during the talks with the ASEAN," he says.

In one case, the willingness was reflected by China’s agreement to the Early Harvest Program under which the two sides agreed to gradually reduce the tariffs on 500 agricultural products to zero beginning in 2004.

The-then ASEAN Secretary-General Ong Keng Yong showed his appreciation for the efforts that China made during the talks when he was interviewed by China Daily last October in Nanning, capital of South China’s Guangxi Zhuang autonomous region.

After the China-ASEAN commodity trade agreement was signed in 2004, nations and regions including India, Japan, the US, Australia, and the EU also followed suit embarking on FTA talks with the ASEAN. But, "the relations (with China) are more healthy and positive," Ong Keng Yong says. "China looks at a bigger picture before coming down to the small details". He added that it is a sharp contrast with the other partners’ approach, "they usually look at the details first".

Currently, everything seems going smoothly with the China-ASEAN FTA. The China-ASEAN commodity trade agreement and the first round of service trade agreements came into effect in 2005 and 2007. Discussions on investment and two more rounds of service trade agreements are underway and expected to be wrapped up by 2010.

Upward, but hard going

The China-ASEAN FTA stirred up not only interest from the nations in the ASEAN, but more importantly, a fresh wave of FTA talks between China and non-ASEAN members.

China is now involved in 12 FTA negotiations with 29 countries and regions including the Asia-Pacific region, Latin America, EU, Africa and Oceania, according to the Ministry of Commerce (MOFCOM).

The enthusiasm comes partly from the slow progress that the Doha Round of negotiations has made and partly from the rapidly rising trade volume led by the FTA.

The Doha Round, which aims to ease the global imbalance in economic development, officially started in November 2001, and had been scheduled to end before 2005.

But for times, talks were delayed due to disagreements among the WTO members, and they eventually collapsed in 2006 as countries, especially the EU and the US could not agree on some key issues such as size of agriculture tariff cuts.

This force China to resort to some alternatives to enhance its economic and trade relations around the globe and the FTA option presented a nice choice.

Recent MOFCOM statistics show China’s trade volume reached $2.17 trillion in 2007, one fourth of which was attributed to the FTA.

The momentum of the FTA talks will increase, especially after President Hu Jintao called for the FTA to be pushed forward when he addressed the 17th CPC National Congress last year. It was the first time the FTA strategy was highlighted at such an event.

The MOFCOM also emphasizes in a recent statements that building FTAs enhances China’s entry into the WTO, and it provides China with new opportunities to gain advantages amid the process of globalization.

But negotiations are always the hard side of any FTA, as both sides struggle to get the best from the FTA. And as each FTA is unique and there is no universal template to work from.

As a nation more powerful in agriculture but weaker in some service sectors, China and its FTA partners always encounter friction when tackling the two sectors.

China-Australia talks that started in May 2005 were bogged down over discussions over the two issues. The 11th round of talks were scheduled to be held in the first half of this year in Beijing.

Officials from South Korea have said agriculture will be the major stumbling block if China-South Korea FTA talks cannot begin within the next few years, although both a two-year preliminary study and a feasibility study conducted by the two economies say such an FTA would benefit them.

Regarding the China-ASEAN FTA, Xu Ningning, deputy secretary-general of the China-ASEAN Business Council, says the next two years will be harder than ever as the two sides will be squabbling over to what extent they open service sectors and investment.

Still not mainstream

But an FTA cannot take the place of the WTO or play a leading role in the world economy, say experts.

Take China for example. China usually gives priority to developing nations when it comes to considering an FTA partner. But the nation’s major trade partners like the US, EU, Japan and South Korea have not taken part in the China FTA game.

China is not alone. Observers say the pattern is repeated worldwide except for the US-South Korea FTA signed in April 2007.

There are many things that can be dealt with under the WTO, but not within the framework of an FTA, says Long.

"WTO draws up the rules and regulations concerning global trade activities, under which nations could exchange business in a fair way, and it also forms a mature system in solving global trade conflicts. But a FTA can do neither of these," he explains.

There is only one aspect that FTA is better than the WTO: it is efficient in opening markets and reducing tariffs, but under the WTO, this cannot be achieved until the 150-odd members reach consensus.

More than that, the Doha Round, whose stalled talks stimulated the FTA talks restarted in early 2007. The WTO Director-general Pascal Lamy admitted the parties are closer to their ultimate goal and this January the US and EU jointly said they would like to conclude the Doha talks by the end of 2008.

"China will be riding ahead on both wheels (WTO and FTA), but absolutely the WTO is more important from a long-term perspective," says Long.

China Daily | 2008-06-23

Trade deals

A free trade area (FTA) is an agreement between nations to eliminate or reduce tariffs and quotas on most goods traded between them.

China is now involved in more than 10 FTA negotiations with 29 countries and regions from around the world, including the Asia-Pacific region, Latin America, Europe, Africa and Oceania.


The FTA with ASEAN was China’s first. In November 2004, the two parties signed a commodity trade agreement, signaling the beginning of the China-ASEAN FTA.

The agreement took effect in July 2005 and would see China and the 10 Southeast Asian nations gradually reduce or remove tariffs on 7,000 products by 2015.

China-Pakistan FTA

Progress on the FTA with Pakistan has been fast.

In April 2005, when Premier Wen Jiabao visited Pakistan, the two sides said they would start FTA negotiations. A little over a year later, the China-Pakistan commodity trade agreement was signed.

China-South Korea FTA

The China-South Korea FTA was proposed in November 2004 and a two-year preliminary study found the deal would be positive for both economies. Last March, a feasibility study by governments, industries and academia from both sides began.

The preliminary study found agriculture is a sensitive sector that would hinder the FTA. But many other sectors also raised concern for both sides, including manufacturing and service.

China-Japan FTA

It’s a difficult road ahead for the China-Japan FTA, but its significance is recognized by both sides.

In 2006, then Japanese Prime Minister Shinzo Abe said the FTA was beneficial to both nations and proposed talks begin soon.

But that’s yet to happen.

The key stumbling blocks for Japan are agriculture and protection of intellectual property rights.

China-Chile FTA

Chile is China’s first FTA partner in Latin America and the China-Chile FTA is China’s second.

In November 2005, the China-Chile commodity trade agreement was signed and it became effective in October 2006. Under the agreement, China and Chile will cut tariffs on 97 percent of products to zero in 10 years.

China-New Zealand FTA

After 15 rounds of talks, China and New Zealand signed a FTA this year. The agreement covers a whole range of items including goods and service trade and investment. New Zealand was the first developed nation to initiate FTA talks with China, beginning in November 2004.

China-Australia FTA

The China-Australia talks are on the way, with the 11th round of negotiation held early this year. China and Australia started FTA talks in May 2005.

China-Iceland FTA

Iceland is the first European nation to start FTA talks with China. The two nations held a third round of talks in Beijing in October, 2006, and the fourth round was held in Reykjavik in this March.

source : China Daily

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