Op-Ed Contributors

Time to think of a bigger FTA

By Pan Guoping (China Daily)
Updated: 2009-12-31 07:50
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A giant Free Trade Area (FTA) including China and the member states of Association of Southeast Asia Nations (ASEAN) will be established Friday. The new China-ASEAN FTA was initiated seven years ago on Nov 4, when China and ASEAN signed a framework agreement in Phnom Penh. It will definitely impact the prospect of economic development in Asia and even the world profoundly.

Against the background of the founding of the largest FTA in Asia, it is high time to think about envisioning an Asian-wide trade community.

Regional integration, a trend across the globe in the last two decades, usually starts from trade integration: FTA or common market first, then integration in the financial and monetary fields, and finally in the high political areas such as security. The best path of integration in Asia should begin in the economic front, too.

The current state of Asian economies urges us to consider an FTA covering the whole region. First, the export structure requires the Asian economies to cooperate. The exports of East Asian countries, especially ASEAN member countries, heavily depend on intermediate products such as spare parts and raw materials, which are traditional labor-intensive goods. If the export markets stumble, the homogeneous export structure would make ASEAN economies overproduce and force them to fiercely compete with each other in a shrunk international market. Consequently, exports would plunge. Hence, it is imperative that Asian economies develop division of labor and build up complementarities among themselves.

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At the same time, a chain of production and trade has connected the Asian economies, which now resembles a colossal assembly line. When the economy of a country booms, others will benefit; if economic crisis hit one country, it will soon spread to other Asian countries. In the age of economic inter-dependence, cooperation is inevitable.

A strong consumer goods market is in absence in Asia, too. Dependence on US and European markets has taken a heavy toll on Asian economies during the global financial crisis. The current trade policies can hardly facilitate Asian countries to foster a substantial end-use market and rid themselves of the reliance on the Western market.

And, there is still great potential to promote trade among Asian countries. Though the trade volume among East Asian countries has risen in a fast speed, the proportion of intra-regional trade in the total trade volume is still low due to similar export structure. In recent years, we have observed rapid growth of trade in East Asia. For example, trade between China and ASEAN has surged to $231.1 billion in 2008, almost triple the figure in 2003. Now China is the third largest trade partner of ASEAN, while ASEAN ranks the fourth among China's major trade partners. Compared with EU and NAFTA, however, Sino-ASEAN bilateral trade still accounts for a much smaller share in their total trade volume. Within the ASEAN, the intra-regional trade has maintained at around 25 to 30 percent of the total trade, and no significant change has happened in the past two decades. Other trading titans like Japan and the Republic of Korea (ROK) have not mainly traded with Asian economies, too.

In order to cushion the impact of market wobbling at other parts of the world, and secure a stable development, Asian countries need an institution to coordinate their economic and trade policies. The US, the largest export market for many Asian economies, was not favorable for a regional integration regime in Asia. The financial crisis, however, has shattered the US dominance on world economy, especially the status of the dollar as the sole global currency. It offers an unprecedented opportunity for the Asian countries to promote regional economic integration. Whether the Asian countries could make good use of the great opportunity is a key for them to be unfettered from the economic neo-colonialism and walk on a path of free and sustainable development. The unfair treatment towards Asian countries in the current world economic system can only be surmounted by the cooperation among themselves.

Since it may be the best chance to advance economic integration in Asia, we should seize it and actively promote substantial progress. In order to make up for the losses caused by the declining consumption in the US and European markets, China should boost its domestic consumption and build up a gigantic end-use market for the whole Asia. Only if a colossal and open consumers-goods market is established, the export and even the economic development of Asian countries could be secured. Only on this basis can Asian countries implement the existing FTA agreements, promote trade cooperation, negotiate on an FTA covering all or most of the Asian economies, and eventually build up an Asian-wide FTA.

Along with an Asian FTA, Asian countries should invite the Mideast countries to invest their petrol-dollar in the infrastructure and industries in Asia, and enhance economic cooperation between them. The final target will be a free trade regime across the whole Asia, and every country, large or small, can benefit from the comparative advantage brought by free trade.

An Asian FTA will facilitate the trade growth in the continent, promote division of labor among Asian economies and ensure the stable economic development and financial security in Asia. It could also be a cornerstone for the regional integration in other fronts, such as food security, energy security, environmental protection, and the measures to curb greenhouse gas emissions. Finally, the FTA may extend to a comprehensive economic union.

An Asian-wide FTA will not only facilitate the economic growth of Asia in the long run, but also help shape a fair, rational and harmonious new international economic order. It will not only benefit the Asian people, but also other parts of the world.

The author is a researcher at the Central Party School of the Communist Party of China.

(China Daily 12/31/2009 page8)