ASEAN–China Free Trade Area: background, implications and future development

Abstract

ASEAN–China economic linkages are moving into a new direction. In November 2001, ASEAN and China agreed to establish an ASEAN–China free trade agreement in 10 years. More than a strategic move to signal China’s interest in Southeast Asia, there are implications of such an agreement. For both sides, there should be net trade gains: trade creation would offset trade diversion with ASEAN getting a slight trade diversion while the same trade diversion would not be obvious for China. With China’s strong growth, it seems that China would require more input imports and ASEAN could provide as an alternative source of inputs for natural-resource based and intermediate inputs in an FTA. Both ASEAN and China’s hope to prosper will be intricately linked to their outward orientation and the role of developed countries to open up more opportunities, thus providing a firmer foundation for growth and stability. A new FTA has also opened up a debate of a possible formation of an “Asian Economic Community”.