MANILA, August 30 — When the ASEAN-China Free Trade Area (ACFTA) became fully implemented on 01 January 2010 after about eight years of negotiations of tariff reductions and exemptions on some 9,000 groups of goods and services, it created a new economic expanse with 1.7 billion consumers, a regional gross domestic product of some US$2 trillion and an estimated total trade of US$1.23 trillion, making it the world’s biggest FTA in terms of market size.

For both ASEAN and China, the ACFTA is a testament to their growing economic interdependence. As of June 2011, ASEAN-China trade already stood at US$171 billion, giving ASEAN a significant 10% share of China’s trade with the world and making it China’s 3rd largest trading partner after the European Union (15.61%) and the US (12.12%) during the six-month period.

For China, ACFTA satisfies both its political and economic considerations. China’s confidence building measures with its Southeast Asian neighbors includes the ACFTA, China’s participation in the ASEAN Regional Forum and its accession to the ASEAN Treaty of Amity. With ACFTA, the preferential access for ASEAN to China’s burgeoning market tempers the perceived negative impact of China’s rise. China’s insatiable appetite for energy due to its massive energy demand keeps its eye on the natural resource-rich ASEAN region and its market of 560 million consumers.

China’s economic engagement of ASEAN strengthens its geopolitical clout in the region as it provides a counterbalance for the US and Japan. In fact, Japan, South Korea, India and the US have all taken a page from the ACFTA book with their respective proposals for similar economic arrangements with ASEAN.

For ASEAN member-states, multiple benefits could also be had, despite concerns over the effect of this special opening of ASEAN markets to China – for starters, the price competitiveness issue between many ASEAN labor-intensive manufactures and China. But what makes ACFTA more readily acceptable? ACFTA opens the door to a vast and dynamic economy with an ever-increasing appetite for ASEAN goods and services. ACFTA lessens their dependence on the EU, US and Japan. China’s temperate agriculture is complementary in several areas with the tropical agriculture of ASEAN.

As China continues its economic expansion and with ACFTA in place, China will turn to ASEAN for intermediate goods that are required inputs for the production of its exports to third countries, such as electrical equipment, computer/machinery, lubricants/fuels/oil, organic chemicals, plastics, fats & oils and rubber, all of which are ASEAN’s top exports to China.

However, ACFTA could be a tough sell too. With the intensified competition brought about by free trade and liberalization, some of the pitfalls often cited include the displacement of workers, the stunting of the growth of new and developing industries and the vulnerability to downturns in the economies of trading partners.

Proponents of ACFTA contend that in the long run, fierce competition would induce specialization as enterprises within an FTA would tend to produce goods that give them comparative advantage, paving the way for their global competitiveness as they are able to carve their own niches in the international market.

The Philippines in ACFTA

For the Philippines, it is still early days in terms of weighing up the gains from the ACFTA regime, as ACFTA is still in its first year of implementation. Expectedly, there will be adjustments in industries which are directly affected by free trade, and in ancillary industries like logistics. For ASEAN, however, simulations by the ASEAN Secretariat indicate that ACFTA will boost ASEAN’s exports to China by 48 per cent and China’s exports to ASEAN by 55 percent – figures that are certainly nothing to scoff at.

Corresponding to the belief that the ACFTA is only as good as the number of business people who actually use and benefit from it, the Philippines has embarked on an information dissemination and technical training program for stakeholders on the use of the FTA in an effort to increase the number of users who benefit from the agreement.

In December 2010, the Department of Trade and Industry implemented an information campaign and training on FTAs (“Doing Business in a Free Trade Area”), even as a China-specific FTA information and training campaign is being endeavored with the participation of Chinese experts from China’s Ministry of Commerce, the General Administration of Quality Supervision, Inspection and Quarantine and the China Council for the Promotion of International Trade.

With connectivity being one of the central factors which will determine how competitive an economy will be in the prevailing ACFTA regime, the Philippines is a staunch advocate of the establishment of a nautical highway through the roll on-roll off (RO-RO) concept, as maritime links will be as important as road-rail links in facilitating exchange of goods and lowering business cost in the region. In fact, the Philippine-proposed initiative to conduct a feasibility study on the ASEAN RO-RO and Short-Sea Shipping, included in the 15 programs in the Master Plan on Connectivity, was one of the initiatives proposed by President Benigno S. Aquino III at the 18th ASEAN Summit in Jakarta in May this year .

Is ACFTA then a double-edged sword or a win-win undertaking? Many ask if ACFTA diverts trade from among ASEAN members towards China, which negates one of the main aims of ASEAN of increasing intra-ASEAN trade. Or do ASEAN-China trade interactions serve to drive intra-ASEAN export expansion? It remains to be seen, but this much can be said: the ASEAN-China Free Trade agreement carries much relevance as long as China and ASEAN are each other’s important markets and partners.