China and ASEAN have agreed to build a free trade zone within 10 years. Such a move will have a far-reaching impact on regional political and economic structures. The free trade zone will have a combined population of 1.8 billion -- the world's largest. Many believe the establishment of such a colossal economic entity will change the global economic order.
There are, however, many causes for skepticism. For example, huge as this zone might be in terms of population, its economic clout is limited. China and ASEAN countries posted a total GDP of US$1.7 trillion last year, considerably less than that of Germany and little more than that of either France or the UK. Great economic potential perhaps, but not giant status yet.
In the wake of the US economic slowdown this year ASEAN has been desperately seeking new markets. In fact, China is not ASEAN's top choice for building a free trade area. It was only after September, when Japan rejected an ASEAN proposal to build a free trade zone, that the group began to seek Beijing out.
ASEAN was established in 1967 with China and Japan in mind as its presumed enemies. That the group is now opening its front gates to China and letting it into the regional economy, is like letting a tiger into a lamb's cage. The consequences are highly predictable.
Both China and ASEAN belong to the same segment of the global economic food chain: they rely on basic raw materials and processing industries. In terms of vertical division of labor, they are far more competitive than complementary. Once a free trade zone is set up, China will suck dry all the capital and technologies that flow into the zone and monopolize the market. As Malaysian Prime Minister Mahathir Mohammad put it, ASEAN has very few things it can sell to China.
Given their complex ethnic mix, strong nationalism, political instability and low level of openness, ASEAN countries are frequently prone to infighting and investing anywhere in the region has never been easy for foreign businesses. When in power, former president Lee Teng-hui (李登輝) repeatedly called on Taiwanese businesses to "go south" to ASEAN countries instead of west to China. The policy eventually had to be abandoned because of investment barriers in those countries.
At the fourth ASEAN summit in Singapore in 1992, it was agreed that an ASEAN Free Trade Area should be built within 15 years. Now, nine years later, progress is glacial, with Malaysia and Vietnam resisting tariff-free measures on automobiles and a large number of other items. So clearly the idea of an ASEAN-China free trade zone still has a long way to go before it can be realized
However, the trumpeting of such a free trade zone has set off alarms across Taiwan, which has very close economic and trade relations with ASEAN despite a lack of formal diplomatic relations. Beijing's expanding influence in ASEAN may suffocate Taiwan all the more. A free trade area will also boost China's competitiveness and put a squeeze on Taiwan's economic development.
Regional economic groupings are the trend of the day. The ASEAN-China agreement should be an impetus for Taiwan to speed up its own negotiations for setting up bilateral free trade zones after its WTO entry. Taipei is already negotiating with Central American nations, New Zealand, the US, Japan and Singapore on setting up such zones. Taiwan's diplomatic dire straits make speedy response imperative if it is not to be left behind.
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