Fri, Nov 15, 2002 page8

• Trade key wapon in Asia's future

  • By Wu Fu-Cheng 吳福成
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  China and ASEAN signed the Framework Agreement on Com-prehensive Economic Coopera-tion on Nov. 4 in preparation for the establishment, within 10 years, of a free-trade area. This not only reflects China's regional integration strategy in the new century, but will also have a drastic impact on the political and economic development of the Asia-Pacific region.

  This massive economic entity is expected to have a market of 1.7 billion consumers, a GDP of nearly US$2 trillion and US$1.2 trillion in total trade value. Japan and the US, to avoid losing their stakes in the ASEAN market and their political and economic influence in the region, have also proposed to forge closer econo-mic partnerships with the regional group.

  One consequence of all this could turn out to be rivalry between the China-led Asian free-trade area and a future US-led pan-American free trade zone across the Pacific. Those two groupings, plus the EU, will divide the world into three blocs.

  ASEAN members have long had sensitive and conflicting feelings about China's economic rise, accession into the WTO and promotion of a China-ASEAN free trade zone. They worry that China will attract all the foreign capital from ASEAN like a magnet, but on the other hand, they are eager to exploit China's 1.3-billion-population market.

  Now, China has agreed to provide the three least-developed ASEAN nations -- ?Laos, Cambodia and Myanmar -- ?with preferential treatment starting in 2004 by removing tariffs on more than 600 agricultural, livestock and fisheries products and expanding its participation in the Mekong River development project.

  China also sealed the Decla-ration on the Conduct of Parties in the South China Sea with ASEAN in order to address the sovereignty dispute over islands. All this demonstrates China's intention of taking concrete action to ease ASEAN anxieties about the "China threat theory."

  Undeniably, the signing of the agreement on economic cooperation is advantageous to deepening economic ties between China and ASEAN, while the signing of the declaration on the conduct of parties is conducive to political trust between the two. Following the ASEAN summit in Cambodia, the outside world will find it impossible to view the new ties between China and ASEAN in the traditional light.

  In addition, in the China-ASEAN free-trade area, the 10-member bloc will not have to obey Beijing's orders. The area will be constructed along the lines of the already established Asean Free Trade Association (AFTA) and will follow many of the latter's systems and arrangements, hence the name, ASEAN-China (10 plus one) free-trade area. This enhances the possibility that a 10-plus-three area will eventually take shape.

  At one time the proposal for an ASEAN-Japan-China-South Korea free-trade area was a hot issue. But this plan was superseded by the China-ASEAN deal because Japan was reluctant to open its agricultural market to ASEAN nations.

  Japan was taken aback by the China-ASEAN agreement. To ease the competitive pressure caused by the possibility that Beijing might become the leader in regional integration, Japan has accelerated discussions on a free-trade area. The idea is that the Japan-ASEAN pact will materialize within 10 years but at least one year after the entity between China and ASEAN.

  In addition, Japan also played the "Taiwan card," calling for the formation of an Asian free-trade area covering Japan, South Korea, China, Taiwan, Hong Kong and ASEAN. Such a grouping could rival the EU and the North American Free Trade Agreement countries. Japan hopes that the Asian free-trade area will be operative by 2010, which is also the deadline for the APEC forum to conduct trade and investment liberalization.

  On the other side of the Paci-fic, US manufacturers and financiers have urged their government to sign free trade pacts with ASEAN nations as soon as possible in a bid to maintain their interests and restrict the expansion of China's economic clout in the region.

  But a US plan to establish a trans-Pacific free trade zone has not been well received. Singapore Prime Minister Goh Chok Tong (吳作棟) said that given the sluggishness of the US economy, the future for ASEAN exports to the US is bleak. He added that the region cannot depend on exports to the US to develop its economy, and that only China can replace the US market.

  Apparently, the pressure posed by the ASEAN-China plan has prompted Japan to accelerate its efforts to form an Asian free-trade area and pushed the US once again to place importance on strengthening its ties with ASEAN.

  A foreseeable development is that the Asia-Pacific region will become a battlefield for China, ASEAN, Japan and the US.

  In the development process in which several free-trade areas are to take shape in the Asia-Pacific region, what deserves greatest attention is the possible end result. The US is taking active steps to expand NAFTA southward and cooperate with Central and South American countries by 2005 to establish a pan-American free trade zone.

  China plans to turn the Shanghai Cooperation Organization into a free-trade area. In combination with the future China-ASEAN free-trade area, a China-led "dragon" of an Asian free-trade area will take shape.

  By that time, the Asia-Pacific region will become a battleground in which the pan-American free trade zone and the Asian free-trade area will compete against each other. On the other hand, the EU will definitely become a major economic entity after deepening its economic integration. The global economy will then be divided by the three blocks. But we don't know where Taiwan will position itself. This is something we should be addressing now.

  Wu Fu-cheng is an associate research fellow in the international affairs division of the Taiwan Institute of Economic Research.

  Translated by Jackie Lin
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