The China-ASEAN FTA

The natural resources of Indonesia include the Grasberg mine, the largest gold mine and the second largest copper mine in the world.

The Grasberg mine in Indonesia (Photo credit: Paul Q. Warren)

The next section of the 2011 paper by Anne Booth, SOAS, University of London: China’s Economic Relations with Indonesia: Threats and Opportunities.

The China-ASEAN FTA

Discussions about enhanced economic cooperation between China and ASEAN began in 2000, at the ASEAN-China summit in that year. It was decided to move towards a formal Free Trade Area, incorporating six of the ten ASEAN countries in 2010, with Vietnam, Laos, Cambodia and Myanmar joining in 2015. The formal commencement of the ASEAN-China Free Trade Agreement (ACFTA) on January 1, 2010 was greeted with great enthusiasm at the official level in China and in some multilateral bodies. The official Chinese view was that “China and ASEAN enjoy geographic advantage in their economic cooperation, and their economies are highly complementary to each other”. Senior officials in the Asian Development Bank were quoted as arguing that ACFTA was an important vehicle for trade-led recovery in the Asia-Pacific region. It was also pointed out that ACFTA presented an opportunity for the ASEAN countries to "latch on to China's production networks" and sell to Chinese consumers. The reaction in ASEAN was more muted, although the ASEAN Secretary-General stated that the free trade area “will benefit both sides and help lift the world economy out of the crisis”. 

In one sense the official enthusiasm around a free trade area between China and the ASEAN-6 might seem rather odd, given that all these countries were already WTO members, and as such supposedly committed to non-discriminatory free trade. Most of the supporters of the ACFTA have made little attempt to spell out exactly what the benefits would be, either to China or to the various ASEAN countries. Indeed some commentators have suggested that the business communities in ASEAN and China played little role in creating the ACFTA, which appeared to be largely driven by political factors (Ravenhill 2011). At the same time, voices were raised in the ASEAN region which were much less supportive of the ACFTA. In the Philippines, fears were expressed that it would simply legalise the widespread smuggling of footwear, garments, shoes, and other manufactures and agricultural products which has already placed considerable pressure on domestic producers. The  Indonesian government, no doubt concerned about the domestic implications of the ACFTA,  formally lodged a letter on January 14, 2010, asking the ten ASEAN nations to defer the implementation until January 2011, although this did not happen. 

Part of the concern in both Indonesia and the Philippines resulted from a fear that there might be a repeat of the Thai experience, when the so-called “early harvest” experiment during the Thaksin government caused problems for Thai farmers.  In Thailand, tariffs on around two hundred fruits and vegetables  between Thailand and China were removed. This resulted in a flood of products from China into Thailand, but Thai farmers found that exports of  their products into China were still being subject to various tariff and non-tariff barriers. As tariffs are reduced or removed on a much broader range of agricultural and manufactured products, there is an expectation in several ASEAN countries that China will continue with what the outspoken  Chinese economist, Hu Angang has termed China‟s “half-open” model. This means that China will flood the ASEAN countries with Chinese products sold at extremely low prices, while taking in return only those products, mainly unprocessed raw materials, which are needed for China's accelerated industrialization. The fact that many Chinese producers had by early 2010 large unsold stocks of manufactures as a result of slowing world demand added to the concerns in ASEAN that these products will be dumped in Southeast Asia at below cost prices. While it is easy to dismiss some of these claims as attempts by high-cost local producers to claim protection against cheaper imports, whether from China or elsewhere, the problem of dumping cannot be dismissed out of hand. The ACFTA agreement did not appear to include any formal procedures for settling disputes; in the longer term these will have to be introduced.

Indonesian fears were expressed in an opinion piece in Indonesia's leading English-language  paper, published in October 2010, which pointed out that "most people are of the opinion that Indonesia's agricultural products and manufacturing goods are extremely uncompetitive against China's". It went on to argue that instead of seeing the China-ASEAN free trade agreement as an instrument to strengthen the interdependence of the ASEAN region with China, many Indonesians see it as leading to "cut-throat competition that will have negative impacts on the development of Indonesian economic capabilities in the long term". Others view Chinese policies as essentially  neo-colonial; 

In its hunger for raw materials, China is in effect seeking to re-impose colonial  patterns of trade on Southeast Asia. 

It is too early to tell if these fears are justified or not,  but they appear to reflect widely held beliefs in Indonesian business, media and political circles.

Factory workers in China

  

Ravenhill, John (2011),  “The new East Asian  regionalism: A political domino effect”, Review of International Political Economy, Vol 17 (2), May, pp. 178-208