ASEAN-China Free Trade Area:Opportunities And Challenges

The aim of this paper is to examine the nature and dynamics of the relationship between People’s Republic of China and the Association of Southeast Asian Nations (ASEAN). The ASEAN countries are China’s friendly and close neighbors. AESAN and China are important for each other as export markets and import sources. At the ASEAN-China summit in November2001, Former Chinese Premier Zhu Rongji formally made the proposal for the formation of a China-ASEAN Free Trade Area (CAFTA) within ten years, has marked an important milestone in the development of China-ASEAN relations. The Chinese proposal of the CAFTA is both strategically and economically motivated. The main purpose of the study is focusing on opportunities and challenges for the both sides (ASEAN and China) on the ASEAN-China free trade area and Lao PDR is a case study.The signing of the Framework Agreement on ASEAN-China Economic Cooperation (FAACEC) signaled an improved effort from the member countries of ASEAN and China to strengthen their mutual economic relationship. The importance of both ASEAN and China focusing on major area of co-operation, as well as promoting the ASEAN-China Free Trade Area (ACFTA):Strengthening East Asian Co-operation and Promoting Common Development.At the2002Cambodia ASEAN summit, China and ASEAN endorsed the framework agreement towards the CAFTA; The CAFTA which began with the inception year2010set for China and the six original ASEAN states Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand and2015for the newer ASEAN members of Cambodia, Laos, Myanmar and Vietnam. With flexibility on sensitive commodities, and special and preferential tariffs reduced or eliminated. The ASEAN-China Free Trade Area consists of three elements:a) The Agreement on trade in goods, b) The Agreement on Trade in services, and c) To promote and facilitate investment flows. The ACFTA is a market of1.91billion consumers that have a combined GDP of about US$5.83trillion (2008). In terms of consumer market size, the ACFTA is the biggest FTA in the world.For the members of ASEAN, the benefits of ACFTA will be a closer integration and common rules, both which stimulate growth. The ACFTA will offer potential advantages to all members. The removal of trade barriers between ASEAN and China may lower costs, increase intra-regional trade and increase economic efficiency. Significance of ACFTA:first is to deepen the economic and trade ties between China and ASEAN:the China-ASEAN engagement has developed into a new stage of comprehensive bilateral economic and trade cooperation. Contribute to the rebalance of the global economic:ACFTA intensifies the role of East Asia’s domestic demand increasing will facilitate economic growth mode in the region. Enhance the international status of ASEAN:ASEAN has greatly benefited in terms of economic strength and political status due to expanding cooperation with major countries. The strategic spill over:the principle of "give and take" on equal footing defines most of the free trade agreement negotiations. China sees ACFTA as an experiment and touchstone of peaceful development. This is important because free trade area would translate to more trade, more foreign direct investment, and more substantial infrastructure, as well as other long term projects. In particular, it would lead to many opportunities and possibilities for entrepreneurs and investors within and outside ASEAN. The free trade agreement is also expected to lead to greater specialization in production based on comparative advantage.ASEAN-China Free Trade Area is result in positive net trade creation and higher output and welfare for its members. That ASEAN-China Free Trade Area will benefit China by completely eliminating tariffs between the two economies, and also benefit ASEAN by accelerating positive effects on trade and output growth.The establishment of free trade area between ASEAN and China will provide a firm foundation for economic growth and bring prosperity and stability in the Asian region. The formalization of the ACFTA may also be a stepping stone towards stronger regionalism in East Asia.The most important was the accession of Laos to the Association of Southeast Asian Nations (ASEAN) and its Free Trade Area (AFT A) in1997. The objective of AFT A is to eliminate all tariff and non-tariff barriers in the trade between member countries and to promote economic efficiency and competitiveness through increased competition, specialization and opportunities to exploit scale economics.There is a good opportunity for Lao PDR because its geographical location is next to China. Being a neighbor to China highlights both the opportunities and challenges of globalization. As well as trade with China has also contributed significantly to the economic development of Laos. China is not only a neighboring country but also the world’s leading exporter of low-cost manufacturing goods and should be expected to hold a large share of the Lao market. These favorable circumstances and conductive environment provides a good opportunity for Laos to further develop socio-economic goals in the near future.The structure of this paper is provided and divided into seven chapters. The first chapter includes background and significance of the ASEAN-China free trade area. The second chapter talks about the establishment of ACFTA and ASEAN-China relations. The third chapter discusses on opportunities for the both sides ASEAN and China. While the fourth chapter mentions information about the challenges of the ASEAN-China free trade area. The fifth chapter looks into the future of ASEAN-China free trade area. The sixth chapter thoroughly studies the suggestions for promoting ASEAN-China free trade area. And the last chapter is conclusion.