Briefing Paper FTA

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BRIEFING PAPER ON THE
ESTABLISHMENT OF THE ASEAN-CHINA FREE TRADE AREA (FTA)
18 February 2003

I. Terms of Reference

The Technical Committee-Tariff and Related Matters (TC-TRM) instructed the Commission to conduct public hearing/consultation as provided under Section 402 of the Tariff and Customs Code, on the list of products for the Early Harvest under the ASEAN-China Free Trade Area.

II. BACKGROUND AND FRAMEWORK

At the Annual Summit in Bandar Seri Begawan on November 6, 2001, a closer trade relations between the Association of South East Asian Nations (ASEAN) and the People's Republic of China (PRC) started wherein both parties decided to undertake an unprecedented initiative aimed at establishing a bilateral free trade area in 2010.

On 4 November 2002 during the ASEAN-China Summit in Phnom Penh, Cambodia, the Leaders of ASEAN and China signed the Framework Agreement on Comprehensive Economic Cooperation.

1. What is ASEAN-China Free Trade Area?

The ASEAN-China FTA is the world’s biggest free trade area embracing 1.7 billion consumers, a combined gross domestic product (GDP) of approximately 2 trillion US dollars, and total international trade of 1.23 trillion US dollars. It is part of a series of engagements the 10-nation regional bloc is planning with its more prosperous Northeast Asian neighbours to deepen regional integration, lessen dependence on the US market and maintain its relevance as an investment destination.

2. What are the projected economic benefits of the ASEAN-China FTA?

The most obvious economic benefits out of the ASEAN-China FTA include increased bilateral trade, expanded GDP, greater economic efficiency, lower costs, and increased investment which may lead to the better research and development and then technological innovation.

3. What is the Framework Agreement on ASEAN-China Comprehensive Economic Cooperation?

The Framework Agreement which contains a preamble and 16 Articles, provides the legal instrument for enhancing the ASEAN-China economic, trade and investment relations from the short-term to the long-term. It will serve as the fulcrum for establishing the free trade area (FTA) by year 2010 for the six original ASEAN states like Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand and 2015 for less developed ASEAN members like Cambodia, Laos, Myanmar and Vietnam.

4. What are the objectives of the Agreement?

Strengthen and enhance economic, trade and investment co-operation between the Parties;

Progressively liberalise and promote trade in goods and services as well as create a transparent, liberal and facilitative investment regime;

Explore new areas and develop appropriate measures for closer economic co-operation between the Parties; and

Facilitate the more effective economic integration of the newer ASEAN Member States and bridge the development gap among the Parties

5. What is “Early Harvest Program” under the ASEAN-China FTA?

In order to acccelerate the implementation of the Agreement, the Parties agree to implement an early harvest program for trade in goods which is contained in Article 6 of the Framework Agreement.

6. What is the product coverage of the early harvest package?

All products at 8/9 digit level in HS Chapters 1-8 (live animals, meat and edible meat offal, fish, dairy produce, other animal products, live trees, edible vegetables and edible fruits and nuts) shall be covered. The Parties are allowed to have an Exclusion List. However, to balance the concession, the Parties may submit request list to China on products beyond HS Chapter 8. The tariff concession under the Chapter based approach shall be multilateralized to all Parties (i.e. all ASEAN members and China) provided that the same products are included in their early harvest programme.

7. What is the modality of tariff reduction and elimination for all products covered under the Early Harvest Program?*

PRODUCT CATEGORY	Not Later than 01 Jan. 2004	Not Later than 01 Jan. 2005	Not Later than 01 Jan. 2006
With applied MFN tariff rates higher than 15%	10%	5%	0%
With applied MFN tariff rates between 5% and 15% (inclusive)	5%	0%	0%
With applied MFN tariff rates lower than 5%	0%	0%	0%

* For ASEAN 6 and China only

8. What are the timeframes of the negotiations on the Agreement?

For trade in goods, negotiations on the Agreement for tariff reduction/elimination shall commence in early 2003 and concluded by 30 June 2004 in order to establish the FTA for trade in goods by 2010 for China and ASEAN-6 and by 2015 for newer ASEAN Member States

For trade in services and investments, negotiations shall commence in 2003 and concluded expeditiously as possible in accordance to the timeframes to be agreed

For other areas of cooperation, the Parties shall continue to build on existing programs, develop new programs and conclude agreements expeditiously for early implementation

9. When is the deadline for completion of negotiations on Exclusion Lists under the early harvest?

1 March 2003 (only for Philippines, Malaysia and Lao PDR)

10. What is the date of effectivity of the Framework Agreement?

The Agreement shall enter into force on 01 July 2003

11. What are the challenges of the ASEAN-China FTA?

The most salient economic challenges are: homogeneity of export products, possible displacement of workers and rationalization of industries and firms, adjustments by industries especially small and medium enterprises (SMEs), possible trade diversion, implicit economic costs and loss of tariff revenues.