China, Southeast Asia Sign Trade Accord

Vijay Joshi | Vientiane | November 29

AP – Southeast Asian nations and China signed an accord Monday to create the world’s biggest free trade area by removing tariffs for their 2 billion people by decade’s end — a key step in their vision of a trade bloc to rival Europe and North America.

Leaders in the 10-member Association of Southeast Asian Nations also signed a pact to flesh out their agreement last year to create an ASEAN Community along the lines of a unified Europe by 2020. It aims to create a common market with common security goals.

The run-up to the ASEAN summit in the Laotian capital was clouded by concerns that Thailand’s crackdown last month on a protest that left 85 Muslims dead could inflame regional militants, and over Myanmar’s failure to deliver on pledges to go from military rule to democracy.

Some countries indicated they might call those two ASEAN members to task — in a break with the group’s tradition of keeping out of domestic affairs. But both issues were kept off the table during the summit’s ASEAN-only agenda Monday, Thai government spokesman Jakrapob Penkair said.

Thai Prime Minister Thaksin Shinawatra had threatened to walk out if the village crackdown was raised.

On the summit sidelines, South Korea and ASEAN member Singapore concluded negotiations on a two-way free trade agreement.

Chinese Premier Wen Jiabao signed the landmark trade accord with ASEAN leaders later Monday at a conference center built on a palm-fringed swamp in sleepy Vientiane — the first such international event ever hosted by the isolated communist nation of Laos.

Laos spruced up its tiny capital of only 133,000 people, which had no five-star hotel until one was built for the summit by a Malaysian company. Bamboo screens blocked eyesores through the city, and women were asked to wear long skirts rather than pants.

ASEAN also plans free trade areas with Japan and South Korea — and was to sign a blueprint for economic cooperation with India during the two-day summit ending Tuesday. A free trade agreement with India is still many years away.

The ASEAN’s agreements with China and India reflect the group’s desire to latch on to two booming economies that are drawing foreign investment away from the region.

The annual ASEAN summit consists of several, closed-door meetings among leaders: The 10 Southeast Asian countries alone, and in various permutations with summit partners China, Japan, South Korea and India.

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  • China  

    China adds its might to ASEAN
    By Alan Boyd

    SYDNEY – In the 1960s it was “All the way with LBJ”, as Australia put its US loyalties on the line and went hunting communists in Indochina. Thirty years later, Asia’s booming Tigers were the flavor of the month; Canberra was sending corn instead of cannons and then-prime minister Paul Keating was talking of watering down the most enduring postwar Pacific security alliance.

    Now the conservative government of Prime Minister John Howard, which began dismantling Keating’s new regionalism almost as soon as it won office in 1996, wants it both ways. Howard is lobbying for inclusion in an expanded East Asian free-trade zone, but only if it doesn’t prejudice Australia’s vital defense relationship with Washington.

    The crunch is that not all of Australia’s prospective Asian partners are prepared to divorce the two issues of trade and diplomacy, especially as China’s hulking presence is forcing just about everyone to reassess where their strategic interests lie.

    Welcome China
    On Monday the 10-member Association of Southeast Asian Nations (ASEAN) signed an accord with China that will create an open market of 2 billion people by 2010 to compete with Europe and the United States. The pact aims to drop most tariffs over the next five years in a move some analysts have said is a sign Beijing may be moving to undercut America’s vast economic influence over the region.

    The pacts include an agreement to liberalize tariff and non-tariff barriers on traded goods and one to set up a mechanism to resolve trade disputes. The pact will form the first component of a comprehensive accord planned for completion by 2010 that will include the full liberalization of the services sector. If completed on time, the overall ASEAN-China deal will result in the creation of the world’s biggest free-trade zone, covering nearly 2 billion people.

    And on Tuesday, leaders of the ASEAN group agreed with Japanese Prime Minister Junichiro Koizumi to start trade talks in April, with the aim of wrapping them up in two years. The talks will center on how to cut tariffs between the world’s second-largest economy and ASEAN nations.

    Also attending the 10th ASEAN summit in Laos are the leaders of China, Japan, South Korea, India, Australia and New Zealand. It is the first time Australia and New Zealand have been invited to the event.

    India was due on Tuesday to sign “a landmark partnership document” with ASEAN. The agreement is significant not just because it allows India to forge strong economic relations with the group that could catalyze trade between the two sides from the current US$13 billion to $30 billion by 2007, but also because it brings India closer to the region’s economic powers, such as Japan, China and South Korea, as the deal involves a new ASEAN grouping that includes these three countries.

    Australasia connection
    Australia and New Zealand, grouped together through their own Closer Economic Relations (CER) trade agreement, are the only non-Asian states being considered for a free-trade agreement (FTA) centered on ASEAN.

    China, India, South Korea and Japan are the other likely players in an ambitious push to establish the world’s third major trading bloc, with the objective of matching the North American Free Trade Area (NAFTA) and the European Union by 2020.

    Preparatory discussions currently are under way at an ASEAN summit in the Laotian capital, Vientiane, that began on the weekend. For the first time the annual gathering includes the Australian and New Zealand prime ministers.

    But how far should integration go? ASEAN advocates at least a confluence of political views, and expects its friends to ratify the 1976 Treaty of Amity and Cooperation, a largely symbolic non-aggression pact that commits signatories to resolve security issues peacefully.

    China, India, Japan, Pakistan, South Korea, Russia and New Zealand all will have signed by the end of the summit, if only to remove an inconsequential obstacle to a more critical economic relationship. But Howard, worried about sending the wrong signal to the United States, has refused.

    Canberra and Washington have security commitments under the Australia-New Zealand-US (ANZUS) Treaty, reduced to only two parties since New Zealand in effect opted out a decade ago over its hardline stance on nuclear proliferation.

    But Japan and South Korea are also close allies of the US, while Singapore and Thailand have logistical and training arrangements. All six countries are full participants in the annual ASEAN Regional Forum (ARF) security talks and cooperate at various levels in the anti-terrorism offensive.

    So why the reticence about ratifying a treaty that has never been activated and is couched in such generalized terms that it probably could never be enforced in the unlikely event that it were ever put to the test? A likely reason is that Canberra fears being backed into a corner over ASEAN’s blinkered policy of refraining from making judgments on individual members, which has ensured that the bloc will struggle to evolve beyond a limited consultative role.

    Article 2 of the treaty guarantees “non-interference in the internal affairs of one another”, and the right of every state to “lead its national existence free from external interference, subversion or coercion”.

    Given that the Vientiane summit has broached such sensitive topics as continuing human-rights setbacks in Myanmar and the alleged suppression of Thailand’s Muslim minority, the caution is probably justified. Canberra has not been as forthright as Washington on such issues as the nuclear standoff in North Korea and the ponderous pace of democracy in Myanmar. Australia is one of few Western countries that maintain complete consular links with both pariah states. But it has nonetheless been branded a US puppet because of an unguarded moment by Howard – later reinforced by comments from President George W Bush – that Washington saw Canberra as its “deputy sheriff” for security within the region.

    Although Howard insists that his comments were taken out of context, he did not help his cause by later announcing a preemptive-strike counter-terrorism policy, under which Canberra reserved the right to take military action in Asia against perceived security threats.

    Realistically, this is never likely to happen. Canberra lacks the offensive capability to mount anti-terrorist operations in Asia involving military units and is unlikely to risk a damaging loss of economic markets. Yet some ASEAN leaders, mostly notably Malaysian Prime Minister Abdullah Badawi, see the treaty as a test of Canberra’s deeper commitment to Asia after decades of alternately riding the sheep’s back to Europe and the resources trail to North America.

    The 10 ASEAN member countries account for a modest 13.7% of Australia’s overall merchandise trade and 11.3% of its export earnings. Only 3.8% of the bloc’s combined export transactions and 2.6% of its imports are with Australia. But the picture alters radically if data for other Asian states are included. Seven of Australia’s top 10 export markets are in Asia, eight if New Zealand is included. The US is No 2 on the list, but is rapidly being overtaken by India and China.

    While Canberra makes much of its recently concluded FTA with the US, it has other such agreements with Singapore and Thailand. A feasibility study is under way for a similar agreement with China, and there is speculation of a future deal with Malaysia. A Closer Economic Partnership (CEP) signed by ASEAN with Australia and New Zealand in 2002 set a target of doubling both two-way merchandise trade and investment by 2010.

    So far the outlook has not been promising for Canberra: while Australia is progressively buying more goods, ASEAN imports have fallen steadily since 2001, contributing to a widening trade deficit in ASEAN’s favor that could become a diplomatic irritant.

    For all of Canberra’s economic commitment to the region, none of its four key trade-development policies in 2004 has focused directly on ASEAN. Rather, it is the Asia-Pacific Economic Cooperation (APEC) forum, dominated by the US, that takes center stage, though it must be noted that most ASEAN members are also APEC partners.

    In purely economic terms, Canberra doesn’t have a lot to offer ASEAN. Australia accounted for a negligible 1% of global trade last year and its domestic market is only about the same size as Malaysia’s. As an investor, it lags behind such “regional” heavyweights as Sweden, the Netherlands and Finland.

    All this has convinced many observers that ASEAN might want to get Australia on board precisely because of its close US ties, which might give Asia an ear in Washington as the three big blocs look for an edge in the next multilateral trade round.

    There has already been a convergence in the farm lobby, with the Australian-led Cairns group of agricultural exporters providing a buffer between the hostile US and Western European camps. Several ASEAN states are Cairns members.

    The proposed FTA with ASEAN will probably proceed whether or not Canberra accedes to the Treaty of Amity. But in failing to conform to Asian expectations, Australia will leave itself exposed to a far greater set of diplomatic pressures once the serious talk starts on a broader East Asian agreement.

    ASEAN leaders will find it difficult to justify Canberra’s involvement in future diplomatic summits if it lacks a full commitment to the bloc’s ideals – and its treaty symbols, how matter how vacuous they may be. Ominously for Australia, its most vocal Asian critics are Malaysia and Indonesia, arguably the most influential voices in ASEAN.

    As Indonesian spokesman Marty Natalegawa noted: “There can be no more efficient and effective way for Australia to dispel misperceptions some quarters may have of its intentions in Southeast Asia than to simply accede to the [treaty].”

    Alan Boyd, now based in Sydney, has reported from Asia for more than two decades.

  • Hedging bets with India
    By Indrajit Basu

    KOLKATA – Setting the tone for a durable relationship with the Southeast Asian countries, India on Tuesday will sign “a landmark partnership document” with ASEAN at the trading bloc’s third summit in Laos’s capital, Vientiane. The agreement is significant not just because it allows India to forge strong economic relations with the Association of Southeast Asian Nations that could catalyze trade between the two sides from the current US$13 billion to $30 billion by 2007, but also because it brings India closer to the region’s economic powers, such as Japan, China and South Korea, as the deal involves a new ASEAN grouping that includes these three countries.

    ASEAN is a union of Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar and Vietnam. About a decade back, a new grouping called the East Asian Economic Caucus was proposed by Malaysia but it was stillborn because of stiff opposition from the United States, which feared it would be pushed aside from its central security role in Asia. However, the 1997 Asian financial crisis provoked a sense of greater urgency among ASEAN leaders, and these countries as well as India decided to set up a regional trade bloc that might finally take a concrete shape in the two-day summit that concludes on Tuesday. The trading zone that this new grouping created will have a combined gross domestic product exceeding $2 trillion.

    “The landmark document incorporates a plan of action for more intensive cooperation on political and security issues as well as in the economic, social and cultural fields,” said Indian External Affairs Minister K Natwar Singh. “It is a matter of gratification that a number of new dimensions such as cooperation in remote sensing, space technology and information technology have been added to our two-millennia-old cultural, religious and civilization links.”

    Even as this partnership takes yet another step ahead in Asia’s ever closing links, the Indo-ASEAN agreement is more significant because it indicates a shift of the intention of Southeast Asian nations to strengthen ties with India’s surging economy as a counterbalance to China.

    There’s little doubt that China’s dominance in the region’s economy is overwhelming. In 1991, ASEAN accounted for about 6% of China’s imports; in 2002, that figure exceeded 8%. While trade with India at $13 billion accounts for a mere 2% of ASEAN’s total trade, the trade between China and ASEAN members amounted to $62 billion in 2003 (up 40% from 2002). In the first nine months of 2004, China’s trade with ASEAN grew by 35% from a year earlier and is due to surpass $100 billion this year. According to experts, therefore, the need to develop an alternative market has become that much more imperative for ASEAN members because of the specter of China applying brakes on its scorching economy and rattling their economic foundations in turn.

    Growing ties with China have brought another worry: Southeast Asia’s success is becoming too closely tied to China. Last year’s outbreak of severe acute respiratory syndrome (SARS) shut down factories and slowed trade, sending shivers through foreign companies that are increasingly relying on their Chinese operations. Governments across the region have been talking of trade deals with India for a while now and urging their companies to take advantage of its growth. Leading the charge is Singapore, which is using its deep pockets – through its investment outfit Temasek – and advanced economy to forge a bond “that will help it grow along with an awakening India”.

    In fact, Singapore openly says that promoting India’s growth should also offset worries of a possible Chinese slowdown. “We in Southeast Asia have no wish to become merely an adjunct to the Chinese economy,” Singaporean Trade and Industry Minister George Yeo told members of the industry lobby Confederation of Indian Industry during a trip to India last February, “hence our decision to move closer to all economies that want closer links to us.”

    Already, partnering with India has been fruitful for many. For instance, India’s success as an outsourcing destination – though a sore point in the West – has been more of a two-way street for Philippine call centers, which have attracted investments from some of India’s big outsourcing firms while Philippine firms have opened offices in India. Malaysia’s construction sector, too, has been profiting from India’s growth with the involvement of a few Malaysian companies in a number of Indian infrastructure projects. And, for Singapore’s state-owned telecom company Singtel, perhaps no other foreign investment has yielded better returns than its 28% stake in Bharti Tele-ventures, India’s second-largest privately run cellular company.

    Nevertheless, will an Indian pact with ASEAN really work, and if at all, when? After all, the experience of the recent Indo-Thai free-trade agreement (FTA) as well the Singapore Comprehensive Economic Cooperation Agreement (CECA) give enough reasons to fear that this pact too is set to drag on interminably. Despite years of efforts, the now-on-now-off Singapore CECA is yet to see the light of the day, stuck by controversies, the most recent being the Indian Finance Ministry’s objection raised on Friday to the elimination of duty-free imports on certain “sensitive” items.

    The Indo-Thai deal too is being viewed with concern. The common factors in all these pacts are: one, the Indian industry is not yet sure about its competitive efficiency; second, many sectors say they do not want competition on their home turf, which is still protected to a great extent. And finally, there is a huge fear among India Inc that such pacts will be misused as a staging ground for cheaper exports to India. Still, ASEAN members are hoping that adding India to the lineup will at least produce a trade bloc that can effectively compete with the European Union and North America.

    Since India first embarked on its “Look East” policy almost a decade ago, seeking institutional links with ASEAN and East Asia, there have been significant gains. Apart from the FTA with Thailand, India has been extending its strategic reach beyond the Indian Ocean by signing defense agreements with such countries as Singapore and taking on naval policing duties in the Strait of Malacca. The Indian navy has even had a presence in the South China Sea.

    (With inputs from Inter Press Service.)

    Indrajit Basu is a Kolkata-based equity analyst turned journalist with more than 12 years of experience in business/finance and technology journalism. Besides writing for Asia Times Online, he also writes for US-based publications, as well as IT companies.

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