Leaders of China and ASEAN countries are expected to formally launch China-ASEAN free trade area (FTA) today, despite experts and analysts saying various barriers still remain for the two sides to smoothly implement the free trade deal.

"The difficulty to co-ordinate 10 ASEAN (Association of Southeast Asian Nations) members with extremely varying social and economic status, the resistance of some industry players, and the lack of measures to facilitate trade may challenge the China-ASEAN FTA for a long period of time,?said Xu Ningning, the Chinese member of the quasi-official China-ASEAN Business Council.

Xu has long been involved in the China-ASEAN FTA negotiations.

According to the ASEAN Secretariat, eight documents were signed during the ASEAN plus China, Japan and South Korea summit held in Vientiane, Laos between November 27 and 29.

The kernel document is an ASEAN-China plan of action to implement an FTA framework signed by China and ASEAN leaders in December 2002.

Other documents include the Agreement on Trade in Goods, the Agreement on Trade in Services, the Agreement on Dispute Settlement Mechanism, and some memorandums of understanding on transport co-operation, cultural co-operation, and information highway construction.

"These documents mark that the China-ASEAN FTA will soon be formally launched,?Zhang Yunling, director of the Institute of Asia-Pacific Research under the Chinese Academy of Social Sciences, told China Business Weekly.

Zhang is the former chairperson of the China-ASEAN expert panel that in 2001 drafted a China-ASEAN FTA feasibility plan.

The China-ASEAN FTA is scheduled to be fully completed before 2010. By then, the average duty within an ASEAN-China FTA will vary between zero and 5 per cent. Trade and investment barriers would also be eliminated.

The FTA will cover 1.7 trillion people, 40 per cent of the world's foreign exchange reserves, and about 10 per cent, or US$2 trillion, of the world's gross domestic product (GDP).

Despite the expected booming picture, however, insiders close to the Ministry of Commerce reveal that the Agreement on Trade in Services has not been included in the final document-signing list.

Insiders say the two sides of the proposed China-ASEAN FTA feel the current conditions set in the draft service trade agreement are not mature and the pact needs more negotiations. The two sides have not reached a consensus on when to finish the service trade negotiation.

The Agreement on Trade in Goods, the major pact of the China-ASEAN FTA, failed to cover all commodities.

According to a Jakarta Post report, the Indonesian Government has submitted nearly 400 categories of highly sensitive goods to be excluded from the liberalization scheme set out under the planned ASEAN-China FTA.

That piece of news has not been confirmed.

Xu mentioned that to drop one or two commodities due to various considerations is not a big problem, but to co-ordinate 10 ASEAN members in the tariff reduction process remains a big challenge.

There are more than 10,000 categories of commodities involved in the tariff reduction process.

Xu stated that the situation is complicated by two facts.

First, the ASEAN Secretariat is not as strong and efficient as the European Commission, so it will have to rely on the help of individual countries to work out detailed plans to implement the tariff reduction.

Second, with varying economic conditions, ASEAN countries may use various excuses to struggle for their favoured order of tariff reduction in industries.

Zhang, however, is more optimistic.

"The Agreement on Dispute Settlement Mechanism to be signed at the China-ASEAN summit is expected to help solve these problems,?Zhang told China Business Weekly.

The inspection and quarantines of commodities between China and ASEAN may also thwart the free trade process. The two parties have not signed a trade facilitation pact to solve the problem, and countries within the China-ASEAN FTA may use different criteria to set trade barriers, Xu said.

Political reasons, too, will impede the successful advancement of the China-ASEAN FTA.

In the latter half of this year, the Philippines and Indonesia held their presidential elections while Singapore changed its prime minister.

Politicians of these countries have had to make significant concessions to trade unions and industry associations. This situation may appear again during the process of implementing the FTA, Xu said.

He recommended that Chinese industry associations strengthen their ties with their counterparts in ASEAN countries so that they can effectively know the ASEAN industry associations?moves and better understand each other's intentions.

Based on this information and understanding, Chinese industry associations can suggest their member companies adjust export or import strategies to avoid trade conflicts, said Xu.

He added that so far the organizing capabilities of most Chinese industry associations are very weak and they have poor links with their ASEAN counterparts.

Ding Dou, an associate professor of trade at Peking University, said China may have a bigger trade deficit against ASEAN during the implementation of the FTA.

In 2003, trade volumes between China and ASEAN countries were a combined US$78.25 billion, in which China had a trade deficit of US$16.4 billion. It is expected that China-ASEAN trade will surpass US$100 billion this year, and China's trade deficit could expand to US$20 billion.

In agriculture, China's deficit was more apparent. Under an early harvest plan of China-ASEAN FTA that was implemented in January 2004, the two sides have cut tariffs on about 600 agricultural products.

Between October 2003 and September 2004, according to a report posted by the trade website Alibaba.com, China imported from Thailand vegetables and fruits worth US$420 million, resulting in a trade deficit of US$350 million in the category.

However, Pengiran Mashor Pengiran Ahmad, deputy secretary-general of the ASEAN Secretariat, was quoted as saying, by Guangzhou-based 21st Century Economic Herald, that the China-ASEAN FTA is a good chance for China to expand its exports to ASEAN countries and reduce its trade deficit against the bloc.

"No matter what the general balance of China-ASEAN trade will be, the Chinese Government should develop a plan to compensate its farmers?losses, if the China-ASEAN FTA really benefits the people,?Ding told China Business Weekly.

(Business Weekly 11/30/2004 page1)