ASEAN: History and Perspectives - Essay Example

Geopolitical Paper Table of Contents Table of Contents 2 Introduction 3 Historical Perspective 3 Rationale behind ASEAN-China FTA (ACFTA) 4 Benefits 5 Benefits for China in ACFTA 7 Challenges 8 Conclusion 9 9 References 10 Bibliography 12 Introduction ASEAN stands for the Association of Southeast Asian Nations and was launched on 8th August in the year of 1967 in Thailand. The various member countries of ASEAN are Cambodia, Indonesia, Brunei Darussalam, Laos, Malaysia, Myanmar, Singapore, Thailand, Vietnam and Philippines (ASEAN Secretariat, 2009). Historical Perspective It was on 1st January 2010 that was marked as the most remarkable year in the history of Asia as that brought new economic space that would have a major implication for the countries. It was on that day when ASEAN China Free Trade Area was fully implemented which has been marked as the world’s third leading free trade area. China has been the third largest trading partner of ASEAN and it accounted for 11.3% of the total trade of ASEAN in the year 2008 (ASEAN Secretariat, 2010). As observed by Dr. Surin, “China’s economic growth and strong investment expansion is energizing the region and is providing ASEAN with an expanding diversified market in an environment of slowing growth in its traditional partners” (ASEAN Secretariat, 2010). Rationale behind ASEAN-China FTA (ACFTA) There were many rationales behind ASEAN - China FTA (Free Trade Area). ASEAN countries wanted free trade with China for many reasons and the motivation involved both political as well as economical factors. The first reason has been that China is huge economy and the increasing demand for goods and services from ASEAN would lead to growth of all the ASEAN countries. Closer integration with China would facilitate ASEAN to reduce the reliance on other countries like United States, Japan and European Union. Moreover it was found that China has been quite supple with the new ASEAN countries and has been providing developmental assistance. By extending WTO nations’ benefit to the non WTO member would make it viable for the new ASEAN countries to gain from trade liberalization with China. Besides this, the other reason for choosing China was the temperate agriculture of China and tropical agriculture of ASEAN which was complementary and thus they could have liberalized the agricultural trade. Again according to ASEAN, the ASEAN-China FTA (ACFTA) is the way through which the post crisis can be recovered. China’s enthusiasm for forming the ASEAN-China FTA was also politico-economic. When viewed politically China wanted to maintain friendly relations with its neighboring countries in the south. It has also been noted that ASEAN-China FTA was a confidence building process in order to put to rest the ASEAN distress over China’s economic condition that was a threat. Therefore close collaboration was held between the ASEAN-China in areas like trade, investment, information and security. The geopolitical objective was to protect the China’s trade road in South East Asia. China would be able to build its geopolitical power and offset the influence of United States and Japan with the closer economic relation with ASEAN (Vutha & Hossein, 2008). Benefits After the declaration of free trade area, there has been liberal trade between China and ten countries of ASEAN. It covers 1.9 billion consumers and in terms of population, it is the world’s biggest zone. This arrangement brings many advantages to the economy of all the member countries of ASEAN and China itself. Free trade area helps to provide additional export markets to China and such interaction with the ASEAN countries helps it to shove modification in its currency and also the trade policies. Such a close incorporation with ASEAN helps China to adopt transparent and open market policies as many countries don’t concede China’s market economic status. It has also been noted that China has been prospering because of export oriented production and foreign investment while ignoring their own domestic market. Hence, such closer integration with the ASEAN countries can also help Chinese entrepreneurs to pay more attention towards its own domestic market and help it flourish. The ASEAN China Free Trade helps China to understand the different cultures because the ASEAN countries have Muslim, Buddhist, and Christian as well as Hindu populace. It will also help China to experience the societies that are authoritarian, and pluralistic and not western and provide insights on shaping its own political choices in the coming future (Quanyi, 2010). Economic Benefits of ASEAN China Free Trade Area to ASEAN ACFTA will help to create 1.7 billion consumers, GDP of US $ 2 trillions and total trade of US $ 1.23 trillion. It will also help reinforce ASEAN–China trade that will indicate interdependence of ASEAN and China. ASEAN has been exporting electrical goods, lubricants, chemicals and rubber to China. Hence, with the expansion of China’s economy and with ACFTA in place, it can be expected that there will be more imports of raw materials that is required for the production processes from ASEAN countries when the standard of living and the income increases. One of the characteristics of trade in goods agreement is that there is elimination of the non tariff barriers. Such non enforcement of trade barriers will help to lower the trade transactions cost which will help to improve the ASEAN - China trade and increase the economic efficiency. With the creation of ASEAN - China investment area, ASEAN will be able to generate more investments. In these integrated market along with the ASEAN and Chinese companies, entrepreneurs from other countries like US, Europe and Japan who are planning to make their route to Asian markets will also be attracted to invest in these market for the reason being low market risk and improbability. As China has been well established in terms of market and has been performing well in comparison to other countries of the ASEAN and whose macroeconomic and institutional quality has been quite satisfactory it has alone been able to attract lots of investors from abroad. Therefore, integration of ASEAN with China will inveigle more foreign companies and with such a huge market with increased competition and increased economies of scale, the investors will be lured to situate themselves in the incorporated market (Cordenillo, 2005). It has also been noted that there will be great flow of tourist between the two parties i.e. ASEAN and China and there is also likelihood of substantial increase in FDI (Foreign Direct Investment) for service related facilities like tourism and restaurants as well as trade like both wholesale and retail. Benefits for China in ACFTA After the establishment of ACFTA, China can acquire full benefits in the following ways. a) Base of energy and raw material: Southeast Asia region has abundant of raw materials and energy sources as per China’s view. These will help China who is in need of the resources. b) Expansion of market: After the establishment of ACFTA there will be expansion in the cooperation of trade facilitation between ASEAN and China which will help to reduce the trade procedure and will encourage international trade. It will also guarantee that the customs and other measures do not unnecessarily add to the trade cost. As the tariff will be quite low after the introduction of FTA, the domestic products of the member countries are replaced by the imports of lower cost from other country who are members. This trade creation effectiveness helps to expand the China’ exploration. c) Greater Investment Profits: China will be able to gain great investment profit in ASEAN as it is near to China. Moreover the investments are easier to manage. If the investment cooperation in ACFTA can achieve a number of breakthroughs in national treatment principle then these investment policies will help to determine that investments in ASEAN is very fruitful than any other regions (Yi, 2005). Challenges The expansion of the market is the positive sign for domestic economic growth and for reduction of poverty. This accounts for creation of Free Trade Areas over the past few years. There has been increase in the competition between the home country and the third country markets and also structural modification as well as resource allocations which accounts to huge cost and interference. Nonetheless, the most challenging job is to manage this constraint in a sustainable and futuristic manner in order to get shared competence in the long run. It has been noted that developed countries and developing countries that have enormous natural resources, scenic beauty and large number of industries and are technologically developed have been benefited a lot because of China’s liberalized market and deregulated market. However home market of ASEAN can expect more competition from China. The garment manufacturers are expected to receive more of competitive pressure in ASEAN from China in the near future as there are sophisticated technologies in practice in South Asia. Moreover China will remain the major competitor for various export categories of great interest for both the newer and senior ASEAN members in the export markets for both ASEAN and China. It has also been noted that though there has been considerable investment in the tourism sector but still they have been confined to specific regions. Most of the ASEAN countries still don’t have good accommodation facilities and are even not affordable by the tourist. Therefore, these tourism sector needs to be improved and there is need for variation in these sector as these can be the major source of income for the country. There is also requirement of managing the future competition by both the ASEAN as well as China. In order to gain new market there is the need of innovation and learning driven improvements and also the products as well as the processes needs to be differentiated. In the meantime, there are other attributes of competitive advantages like demand, more sophistication and the changing needs. The demands of the consumer are also quite reflecting. With response to this the product life cycle is shortened, the design changes frequently and there is greater mass customization. Thus, the structural adjustments are becoming complicated, costly and time consuming. Therefore, the processes needs to be initiated so that a timely response can be provided to the changing needs from both domestic as well as external conditions (Wattanapruttipaisan, 2003). Conclusion It was because of the initiatives taken by China and ASEAN countries and the positive responses led to the establishment of ACFTA where the initial trade was very encouraging and has helped to build confidence in regional economic integration. The launching of ACFTA is the most integral step for Pan-Asian regional economic integration (Yi, 2005). References ASEAN Secretariat, (2009). Association of Southeast Asian nations. Overview. Retrieved Online on September 21, 2010 from http://www.aseansec.org/64.htm ASEAN Secretariat, (2010). ASEAN-China Free Trade Area: Not a Zero-Sum Game. Home. Retrieved Online on September 21, 2010 from http://www.aseansec.org/24161.htm Cordenillo, R. L., (2005). The Economic Benefits to ASEAN of the ASEAN-China Free Trade Area (ACFTA) [1]. Enlarged Market Size and Enhanced Trade. Retrieved Online on September 21, 2010 from http://www.aseansec.org/17311.htm Quanyi, Z., (2010). Chinas Free Trade Area with ASEAN. Home. Retrieved Online on September 21, 2010 from http://www.upiasia.com/Economics/2009/12/31/chinas_free_trade_area_with_asean/7266/ Vutha, H. & Hossein, J., (2008). Trade Knowledge Network. Environmental Impacts of the ASEAN-China Free Trade Agreement on the Greater Mekong Sub-Region. Retrieved Online on September 21, 2010 from http://www.tradeknowledgenetwork.net/pdf/tkn_enviro_impacts_china.pdf Wattanapruttipaisan, (2003). ASEAN--China Free Trade Area Advantages, Challenges, and Implications for the Newer ASEAN Member Countries. The Challenges of Supply-side Competition. Retrieved Online on September 21, 2010 from http://www.allbusiness.com/finance/530125-1.html Yi, X., (2005). ASEAN-China Free Trade Area: A Key Step toward Pan-Asia Economic Integration from the Perspective of Comparison with NAFTA and EU. Home. Retrieved Online on September 21, 2010 from http://www.natlaw.com/treaties/asean-chinafta.pdf Bibliography Ho, K. L. & Et. Al., (2005). China and Southeast Asia: Global Changes and Regional Challenges. Institute of Southeast Asian Studies. Pg – 43. Read More