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China-ASEAN Free Trade Area Quarterly Report (Q1-3)

Post Time:2014-08-25 11:05:00

2.2 Creating an upgraded version of the China-ASEAN Free Trade Area (China-ASEAN FTA)

Since the negotiation initiated in 2001, it now seems that the China-ASEAN FTA agreement is comparatively underdeveloped, the trade and investment liberalization and facilitation is lagging behind the demand for rapid development of bilateral economic and trade relations. In the meanwhile, the scope and content of the FTA agreement cannot meet the new trends and new requirements for economic globalization and regional economic integration. Under such circumstances, Premier Li proposed to create an upgraded version of China-ASEAN FTA at the 16th ASEAN-China Summit in September 2003.

2.2.1 Creating an upgraded version of China-ASEAN FTA Enables China and ASEAN to achieve mutually beneficial and win-win outcomes.

The building of the upgraded version of China-ASEAN FTA by liberalizing markets to each other will further deepen bilateral cooperation in trade and investment and promote regional economic integration, thus benefiting the economic growth of countries in the region. The economic conditions of mutual liberalization will be conducive to industrial upgrade of the two sides, industrial restructuring in China and acceleration of industrialization in the ASEAN countries. The creation of the “upgraded version” will be an important move to build the “diamond decade” of China-ASEAN cooperation.

2.2.2 Upgraded version of China-ASEAN FTA: closer economic ties and broader cooperation

Ten years since its establishment, the China-ASEAN FTA has played an important role in promoting China-ASEAN economic and trade cooperation, yet as regional economic integration develops rapidly, CAFTA has encountered many difficulties in pursuing further development. Benefited from the China-ASEAN Early Harvest Program and the zero-Tariff Policy, the good trades cooperation between China and ASEAN has grown rapidly over the past decade, however, the service and investment markets still need further openness to each other. Since the establishment of the CAFTA, China has been grappling with trade imbalances with the AEAN countries, especially its trade surpluses with the underdeveloped ASEAN members. Besides, investment from the ASEAN countries in China has been much higher than vice versa.

To elevate the level of cooperation, China and ASEAN should shift from merely trade cooperation to comprehensive cooperation of trade in goods, trade in service and investment, especially  service and trade cooperation based on investment. With regard to decrease sensitive products proportions and further liberalize the goods market throughout negotiations, the so-called “upgraded version” should focus more on opening up the trade and investment markets to each other and substantively increasing the liberalization and facilitation of trade and investment. In this case, the potential of the upgraded CAFTA would be demonstrated and the intense of enabling ASEAN countries to benefit from Chinese development would be achieved. In short, the priority of building an upgraded version of China-ASEAN FTA is to lift the regional economic integration to a higher level, in an attempt to achieve mutually beneficial and win-win outcomes for China and ASEAN throughout building a comprehensive development economic zone featuring all-round, broad and deep cooperation and higher economic integration.

2.2.3 Challenges for upgraded China-ASEAN FTA

The fifth meeting of CHINA-ASEAN FTA Joint Committee was held in China in march 2014. The theme of this meeting were to initiate preparations for the negotiation of building an upgraded version of China-ASEAN FTA, review the implementation of relevant trade agreements and discuss issues such as rules of origin, economic cooperation, customs procedures and trade facilitation, health, plant health and standards, technical regulations and conformity assessment procedures.

Before the meeting was held, China has presented an initiative draft focusing on trade in goods to ASEAN  According to the draft, the two sides will collect new products that could be liberalized in the future and discuss on add some sensitive products to the tarrif examption list. ASEAN countries discussed about the draft at the meeting but failed to reach a consensus, even though the differences in opinion had been gradually narrowed down.

ASEAN countries mainly have two douts about the building of the “upgraded version” of CAFTA : first, some ASEAN countries were worried that further market liberalization would leave ASEAN’s national industries exposed to the impact from Chinese industries; second, since the negotiation on building Regional Comprehensive Economic Partnership (RCEP),which involving 16 member states including ASEAN and China, has kicked off, some ASEAN countries deems it unnecessary to build the “upgraded version” of China-ASEAN FTA.

In this case, China-ASEAN Business Council (CABC) believes that:

On the one hand, efforts should be made to address the worries of some ASEAN countries about their national industries being impacted, and China and ASEAN should fully negotiate and discuss with each other to strengthen industrial cooperation. In recent years, with the construction of China-ASAEN FTA, the two sides have opened up trade in goods, trade in services and investment markets to each other, thus deepening their economic ties, increasing the connectivity of their economic policies, and enhancing the relatedness of their economic benefits. The increasingly frequent economic activities between the two sides are forming new industry chains within China-ASEAN FTA, with new changes occurring to intra-industry and inter-industry cooperation. High complementarities of both sides’ industry structures are the prerequisites for industrial cooperation, and the rapid growth in trade and investment cooperation has laid a solid foundation. Enhancing industrial cooperation and building industry chains featuring with mutual support to relative advantages are conducive to achieving mutually beneficial and win-win outcomes, thus easing some ASEAN countries’ concern over national industries being impacted.

On the other hand, the cons

truction of the RCEP is based on the five ASEAN+1 FTAs, including ASEAN-China FTA, ASEAN-Japan FTA, ASEAN-South Korea FTA, ASEAN-India FTA, and ASEAN-Australia and New Zealand FTA. As the first established FTA, ASEAN-China FTA is relatively rough, therefore, further improvement of CAFTA is beneficial for China ASEAN  economic growth and to RCEP construction.

2.2.4 Key contents of the upgraded CAFTA

With regard to trade in goods, both parties shall further reduce the trade tariff level and constantly expand the category scope of goods covered; and on the other hand, both parties shall continue to make efforts in promoting trade facilitation, further refining institutional arrangement, cutting back on non-tariff barriers, strengthening coordination and cooperation among the customs, quality inspection and other functional departments as well as pushing forward the facilitation construction for inspection, quarantine and customs clearance.

With respect to trade in service, currently, the liberalization level of trade in service between China and ASEAN is lower than ASEAN-Korea FTA and ASEAN-Australia-New Zealand FTA, therefore, vigorously promoting the liberalization of trade in service has become one of the major contents of the upgraded version of China-ASEAN FTA. During the negotiations on entry into WTO, China set relatively higher threshold and longer transitional period relative to trade in goods for the entry of trade in service. In the 33 items listed in the schedule of concessions for the opening-up of trade in service, a number of restrictions were imposed on sectors such as telecommunications, cinema construction and operation, gas, heat, water supply and drainage, and there were also quite strong industrial protection for sectors such as banking, insurance and securities. Currently, China and ASEAN have started to fulfill the commitments of the first two rounds for the opening-up of trade in service, and both parties have opened up certain new areas, which represents a higher liberalization than the WTO level. Both parties should touch upon the third round of opening-up for trade in service in the negotiations on the updated version.

With respect to cooperation in investment, efforts shall be made to gradually achieve the pre-establishment national treatment and negative list management mode of investment. At present, the “10+1” free trade agreements between ASEAN and Australia, New Zealand, India, Japan and Korea all adopt the pre-establishment national treatment and negative list management, which represents the general mode in conformity with the current international practice. Due to China’s specific national conditions, the previous investment agreements between China and ASEAN did not involve pre-establishment national treatment and negative list. However, since the Sino-US investment agreement negotiations have already clarified the direction for pre-establishment national treatment issue and negative list, and China has been piloting on it in the Shanghai Pilot Free Trade Zone, therefore, the ASEAN may raise requirements to China based on the afore-said development during the updated negotiations to include the pre-establishment national treatment and negative list management into the new Agreement.

Deepen financial cooperation. All countries shall further optimize policy environment, take steps to establish uniform and coordinated regional financial market system, establish and improve the financial consultation long-effect mechanism and reinforce financial innovation. Strengthen cooperation in the fields of financing channel construction, home currency settlement, etc.

To strengthen China-ASEAN connectivity construction, which includes both hardware and software terms. Infrastructure connectivity remains the urgent need for both China and ASEAN countries in pursuing development, and is also the foundation for the establishment of CAFTA. Reinforcing infrastructure construction and achieving “seamless connection” with ASEAN in fields of transportation, oil and gas pipelines, power grid and information network; accelerating the construction of the “integrated” port management mechanism with ASEAN countries and strengthening policies and institutions connectivity between both sides are all conducive to the construction of the upgraded version. Since infrastructure construction calls for huge amount of capital resources, China proposed to prepare for building the Asian Infrastructure Investment Bank (Asia Investment Bank) in October 2013 to focus on the infrastructure construction of Asia, promote regional connectivity as well as economic cooperation, which has received positive feedback from many Asian countries. Recently, China has established the Asian Investment Bank workshop to accelerate the preparation work.

To Be Continued

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